<PAGE>
                                                     Exhibit (99)-1
                                                     Unicom Corporation
                                                     Form 10-K, File No. 1-11375


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                       PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 30, 1998

                               UNICOM CORPORATION
             (Exact name of registrant as specified in its charter)

        Illinois                    1-11375                  36-3961038
     (State or other       (Commission File Number)         (IRS Employer
     jurisdiction of                                     Identification No.)
     incorporation)

 37th Floor, 10 South Dearborn Street,                 60690-3005
    Post Office Box A-3005, Chicago,                   (Zip Code)
                Illinois
    (Address of principal executive
                offices)

       Registrant's telephone number, including area code: (312) 394-7399
<PAGE>

ITEM 5. OTHER EVENTS

  The purpose of this Current Report is to file certain financial information
regarding the Registrant (Unicom Corporation) and its subsidiaries. Such
financial information is set forth in the exhibits to this Current Report.

  Exhibits

<TABLE>
     <C>  <S>
     (23) Consent of Independent Public Accountants
     (27) Financial Data Schedule of Unicom Corporation
     (99) Unicom Corporation and Subsidiary Companies--Certain Financial
           Information as of and for the Year Ended December 31, 1997:
          --Summary of Selected Consolidated Financial Data
          --Price Range and Cash Dividends Paid Per Share of Common Stock
          --1997 Consolidated Revenues and Sales
          --Management's Discussion and Analysis of Financial Condition and
           Results of Operations
          --Report of Independent Public Accountants
          --Statements of Consolidated Operations for the years 1997, 1996 and
           1995
          --Consolidated Balance Sheets--December 31, 1997 and 1996
          --Statements of Consolidated Capitalization--December 31, 1997 and
           1996
          --Statements of Consolidated Retained Earnings (Deficit) for the
           years 1997, 1996 and 1995
          --Statements of Consolidated Cash Flows for the years 1997, 1996 and
           1995
          --Notes to Financial Statements
</TABLE>

                                       2
<PAGE>

                                   SIGNATURE

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                          Unicom
                                           Corporation
                                            (Registrant)

                                          By:         Robert E. Berdelle
                                             ----------------------------------
                                                      Robert E. Berdelle
                                                          Comptroller

Date: February 18, 1998

                                       3
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                          DESCRIPTION OF EXHIBIT
 -------                         ----------------------
 <C>     <S>
  (23)   Consent of Independent Public Accountants
  (27)   Financial Data Schedule of Unicom Corporation*
  (99)   Unicom Corporation and Subsidiary Companies--Certain Financial
          Information as of and for the Year Ended December 31, 1997:
         --Summary of Selected Consolidated Financial Data
         --Price Range and Cash Dividends Paid Per Share of Common Stock
         --1997 Consolidated Revenues and Sales
         --Management's Discussion and Analysis of Financial Condition and
            Results of Operations
         --Report of Independent Public Accountants
         --Statements of Consolidated Operations for the years 1997, 1996 and
          1995
         --Consolidated Balance Sheets--December 31, 1997 and 1996
         --Statements of Consolidated Capitalization--December 31, 1997 and
          1996
         --Statements of Consolidated Retained Earnings (Deficit) for the years
          1997, 1996 and 1995
         --Statements of Consolidated Cash Flows for the years 1997, 1996 and
          1995
         --Notes to Financial Statements
</TABLE>
* Previously filed and incorporated by reference to Unicom Corporation's Form
  8-K Current Report dated January 30, 1998.


<PAGE>

                                                          Exhibit (23)
                                                          Unicom Corporation
                                                          Form 8-K File No. 1-
                                                          11375

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

  As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 30, 1998 on Unicom Corporation and
subsidiary companies' consolidated financial statements as of and for the year
ended December 31, 1997, included as an Exhibit to this Form 8-K Current
Report of Unicom Corporation dated January 30, 1998, into Unicom Corporation's
previously filed prospectuses dated March 18, 1994, constituting part of Form
S-4 Registration Statement File No. 33-52109, as amended (relating to Common
Stock of Unicom Corporation), as further amended by Post-Effective Amendment
No. 1 on Form S-8 (relating to Commonwealth Edison Company's Employee Savings
and Investment Plan) and Post-Effective Amendment No. 2 on Form S-8 (relating
to Unicom Corporation's Employee Stock Purchase Plan), Form S-8 Registration
Statement File No. 33-56991 (relating to Unicom Corporation's Long-Term
Incentive Plan), Form S-4 Registration Statement File No. 333-01003 (relating
to Unicom Corporation's Common Stock), Form S-8 Registration Statement File
No. 333-04749 (relating to Unicom Corporation's 1996 Directors' Fee Plan),
Form S-8 Registration Statement File No. 333-10613 (relating to Commonwealth
Edison Company's Employee Savings and Investment Plan) and Form S-8
Registration Statement File No. 333-39677 (relating to Unicom Corporation's
Management Deferred Compensation Plan). We also consent to the application of
our report to Commonwealth Edison Company and subsidiary companies' ratios of
earnings to fixed charges and the ratios of earnings to fixed charges and
preferred and preference stock dividend requirements for each of the twelve
months ended December 31, 1997, 1996 and 1995 appearing in Exhibit 99 of this
Form 8-K.

                                          ARTHUR ANDERSEN LLP

Chicago, Illinois
February 18, 1998
<PAGE>

                                                       Exhibit (99)
                                                       Unicom Corporation
                                                       Form 8-K File No. 1-11375



                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                       CONSOLIDATED FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 1997 AND 1996







<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

FORWARD-LOOKING INFORMATION

  Except for historical data, the information contained herein constitutes
forward-looking statements. Forward-looking statements are inherently
uncertain and subject to risks. Such statements should be viewed with caution.
Actual results or experience could differ materially from the forward-looking
statements as a result of many factors. Forward-looking statements in this
report include, but are not limited to: (1) statements regarding expectations
of revenue reductions as a result of the 1997 Act in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Changes in the Electric Utility Industry" and in Note 2 of Notes to Financial
Statements, (2) statements regarding estimated capital expenditures in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaptions "Liquidity and Capital Resources--UTILITY
OPERATIONS--Construction Program" and "Liquidity and Capital Resources--
UNREGULATED OPERATIONS--Construction Program," (3) statements regarding the
estimated return to service of certain nuclear generating units and the costs
of purchased power in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation--Nuclear
Matters," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Results of Operations--Purchased Power,"
(4) statements regarding the costs of decommissioning nuclear generating
stations in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Regulation--Nuclear Matters" and in Note 1
of Notes to Financial Statements, under "Depreciation and Decommissioning,"
and (5) statements regarding cleanup costs associated with MGPs and other
remediation sites in Note 23 of Notes to Financial Statements. Management
cannot predict the course of future events or anticipate the interaction of
multiple factors beyond management's control and their effect on revenues,
project timing and costs. The statements regarding revenue reductions are
subject to unforeseen developments in the market for electricity in Illinois
resulting from regulatory changes. The statements regarding estimated capital
expenditures, estimated return to service of nuclear generation units,
decommissioning costs and cleanup costs are subject to changes in the scope of
work and manner in which the work is performed and consequent changes in the
timing and level of the projected expenditure, and are also subject to changes
in laws and regulations or their interpretation or enforcement. The statements
regarding the estimated return to service of nuclear generating units are
subject to the concurrence of the NRC with proceeding to power operations.
Unicom and ComEd make no commitment to disclose any revisions to the forward-
looking statements, or any facts, events or circumstances after the date
hereof that may bear upon forward-looking statements.

                                     INDEX

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          -----
<S>                                                                       <C>
Definitions..............................................................     2
Summary of Selected Consolidated Financial Data..........................     3
Price Range and Cash Dividends Paid Per Share of Common Stock............     3
1997 Consolidated Revenues and Sales.....................................     3
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  4-20
Report of Independent Public Accountants.................................    21
Consolidated Financial Statements--
  Statements of Consolidated Operations for the years 1997, 1996 and
   1995..................................................................    22
  Consolidated Balance Sheets--December 31, 1997 and 1996................ 23-24
  Statements of Consolidated Capitalization--December 31, 1997 and 1996..    25
  Statements of Consolidated Retained Earnings (Deficit) for the years
   1997, 1996 and 1995...................................................    26
  Statements of Consolidated Cash Flows for the years 1997, 1996 and
   1995..................................................................    27
  Notes to Financial Statements.......................................... 28-54
</TABLE>

                                       1
<PAGE>

                                  DEFINITIONS

  The following terms are used in this document with the following meanings:

<TABLE>
<CAPTION>
         TERM                                        MEANING
----------------------  ------------------------------------------------------------------
<S>                     <C>
1997 Act                The Illinois Electric Service Customer Choice and Rate Relief Law
                         of 1997
AFUDC                   Allowance for funds used during construction
APB                     Accounting Principles Board
CERCLA                  Comprehensive Environmental Response, Compensation and Liability
                         Act of 1980, as amended
CFC                     Chlorofluorocarbon
Clean Air Amendments    Clean Air Act Amendments of 1990
ComEd                   Commonwealth Edison Company
Cotter                  Cotter Corporation, a ComEd subsidiary
CTC                     Non-bypassable "competitive transition charge"
DOE                     U.S. Department of Energy
EPS                     Earnings per Share
ESPP                    Employee Stock Purchase Plan
FAC                     Fuel adjustment clause
FASB                    Financial Accounting Standards Board
FERC                    Federal Energy Regulatory Commission
FERC Order              FERC Open Access Order No. 888 issued in April 1996
GAAP                    Generally Accepted Accounting Principles
ICC                     Illinois Commerce Commission
Indiana Company         Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary
ISO                     Independent System Operator
MGP                     Manufactured gas plant
NEIL                    Nuclear Electric Insurance Limited
NERC                    North American Electric Reliability Council
NML                     Nuclear Mutual Limited
NRC                     Nuclear Regulatory Commission
O&M                     Operation and maintenance
Rate Order              ICC rate order issued in January 1995, as subsequently modified
Remand Order            ICC rate order issued in January 1993, as subsequently modified
SEC                     Securities and Exchange Commission
SFAS                    Statement of Financial Accounting Standards
S&P                     Standard & Poor's
Trusts                  ComEd Financing I and ComEd Financing II, ComEd subsidiaries
Trust Securities        ComEd-obligated mandatorily redeemable preferred securities of
                         subsidiary trusts holding solely ComEd's subordinated debt
                         securities
Unicom                  Unicom Corporation
Unicom Energy Services  Unicom Energy Services Inc., a Unicom subsidiary
Unicom Enterprises      Unicom Enterprises Inc., a Unicom subsidiary
Unicom Resources        Unicom Resources Inc., a Unicom subsidiary
UT Holdings             UT Holdings Inc., a Unicom subsidiary
U.S. EPA                U.S. Environmental Protection Agency
</TABLE>

                                       2
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                1997        1996    1995       1994    1993
                               -------     ------- -------    ------- -------
                                  (MILLIONS EXCEPT PER SHARE DATA)
<S>                            <C>         <C>     <C>        <C>     <C>
Operating revenues...........  $ 7,083     $ 6,937 $ 6,910    $ 6,278 $ 5,260
Net income (loss)............  $  (853)(1) $   666 $   640(2) $   355 $    46(3)
Earnings (loss) per common
 share (basic & diluted).....  $ (3.94)(1) $  3.09 $  2.98(2) $  1.66 $  0.22(3)
Cash dividends declared per
 common share................  $  1.60     $  1.60 $  1.60    $  1.60 $  1.60
Total assets (at end of
 year).......................  $22,700     $23,388 $23,250    $23,121 $24,383
Long-term obligations at end
 of year excluding current
 portion:
 Long-term debt, preference
  stock and preferred
  securities subject to
  mandatory redemption
  requirements...............  $ 6,262     $ 6,487 $ 7,011    $ 7,745 $ 7,861
 Accrued spent nuclear fuel
  disposal fee and related
  interest...................  $   693     $   657 $   624    $   590 $   567
 Capital lease obligations...  $   438     $   477 $   376    $   433 $   323
 Other long-term obligations.  $ 3,183     $ 1,991 $ 1,826    $ 1,754 $ 1,718
</TABLE>
--------
(1) Includes an extraordinary loss for the write-off of generation-related net
    regulatory assets of $810 million (after-tax) or $3.75 per common share,
    the loss on the early retirement of Zion nuclear generating station of
    $523 million (after-tax) or $2.42 per common share and the positive impact
    of a cumulative effect of a change in accounting principle for revenue
    recognition of $197 million (after-tax) or $0.91 per common share.
(2) Includes an extraordinary loss related to the early redemption of long-
    term debt of $20 million (after-tax) or $0.09 per common share.
(3) Includes the positive impact of a cumulative effect of a change in
    accounting for income taxes of $10 million (after-tax) or $0.05 per common
    share.

PRICE RANGE* AND CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK

<TABLE>
<CAPTION>
                             1997 (BY QUARTERS)          1996 (BY QUARTERS)
                         --------------------------- ---------------------------
                         FOURTH THIRD  SECOND FIRST  FOURTH THIRD  SECOND FIRST
                         ------ ------ ------ ------ ------ ------ ------ ------
<S>                      <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>
Price range:
 High..................  30 3/4 25 5/8 24 1/4 28 1/4 28 1/2 28 1/8  29    35 3/8
 Low...................  18 1/2 21     18 1/2 19 1/4 24 7/8 22 5/8  26    27
Cash dividends paid....  40c    40c    40c    40c    40c    40c     40c   40c
</TABLE>
* As reported as NYSE Composite Transactions.
--------

  Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. At December 31, 1997, there were
approximately 145,000 holders of record of Unicom's common stock.

1997 CONSOLIDATED REVENUES AND SALES

<TABLE>
<CAPTION>
                                                                  %
                           OPERATING       %     KILOWATTHOUR INCREASE/                %
                           REVENUES    INCREASE     SALES     (DECREASE)           INCREASE
                          (THOUSANDS)  OVER 1996  (MILLIONS)  OVER 1996  CUSTOMERS OVER 1996
                          -----------  --------- ------------ ---------- --------- ---------
<S>                       <C>          <C>       <C>          <C>        <C>       <C>
Residential.............  $2,552,742       0.4%     22,151       (0.7)%  3,123,364    0.7%
Small commercial and
 industrial.............   2,153,113       1.9      25,860        2.9      291,143    0.5
Large commercial and
 industrial.............   1,467,574       1.5      24,074        0.7        1,566    1.0
Public authorities......     505,907       0.6       7,322       (0.2)      12,180    0.3
Electric railroads......      29,785       0.5         418       (1.4)           2    --
                          ----------                ------               ---------
Ultimate consumers......  $6,709,121       1.1      79,825        0.9    3,428,255    0.7
Provision for revenue
 refunds................     (45,470)    100.0         --         --           --     --
                          ----------                ------               ---------
Net ultimate consumers..  $6,663,651       0.4      79,825        0.9    3,428,255    0.7
Sales for resale........     336,480      43.2      15,679       28.7           51   15.9
Other revenues..........      82,891      21.8         --         --           --     --
                          ----------                ------               ---------
 Total..................  $7,083,022       2.1      95,504        4.6    3,428,306    0.7
                          ==========                ======               =========
</TABLE>

                                       3
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CHANGES IN THE ELECTRIC UTILITY INDUSTRY

  Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change in the
manner in which customers obtain, and energy suppliers provide, energy
services. These changes are attributable to changes in technology, the
relaxation of regulatory barriers to utilities' respective service territories
as well as efforts to change the manner in which electric utilities are
regulated. Federal law and regulations have been amended to provide for open
transmission system access, and various states are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.

  Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.

  The 1997 Act. On December 16, 1997, the Governor of Illinois signed into law
the 1997 Act, which established a phased-process to introduce competition into
the electric industry in Illinois under a less regulated structure. The 1997
Act, as it applies to ComEd, provides for, among other things, a 15%
residential base rate reduction commencing August 1, 1998, an additional 5%
residential base rate reduction commencing May 1, 2002, and customer access to
other electric suppliers in a phased-in process. Access for commercial and
industrial customers will occur over a period from October 1999 to December
2000, and access for residential customers will occur after May 1, 2002. The
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce ComEd's operating revenues by approximately $30 million and
$60 million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.

  The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the 1997 Act. The CTC, which will be applied on a cents per
kilowatthour basis, considers the revenue which would have been collected from
a customer under tariffed rates, reduced by 1) the revenue the utility will
receive for providing delivery services to the customer, 2) the market price
for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.

  Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or

                                       4
<PAGE>

assign assets, retire or remove plants from service, and accelerate
depreciation or amortization of assets with limited ICC authority. Under the
earnings provision of the 1997 Act, if the earned return on common equity of a
utility during this period exceeds an established threshold, a portion of the
excess earnings must be refunded to customers. A utility may request a rate
increase during the rate freeze period when necessary to ensure the utility's
financial viability, but not before January 1, 2000.

  Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.

  The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues, and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.

  As a result of the 1997 Act, prices for the supply of electric generation
are expected to transition from cost-based, regulated rates to rates
determined by competitive market forces. The CTC allows ComEd to recover a
portion of any of its costs which might otherwise be unrecoverable under
market-based rates. Nonetheless, ComEd will need to take steps to address the
portion of such costs which are not recoverable through the CTC. Such steps
include cost control efforts and developing new sources of revenue.

  Accounting Effects Related to the 1997 Act. ComEd's financial statements
reflect the application of SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation. This statement allows ComEd to record certain regulatory
assets and liabilities, which are expected to be recovered or settled in
future rates and would not be recorded under GAAP for non-regulated entities.

  Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it is not probable that
such costs will be recovered through the cash flows from the regulated portion
of its business. Accordingly, the generation-related regulatory assets and
liabilities were written off in the fourth quarter of 1997, resulting in a
charge of $810 million (after-tax) or $3.75 per common share. These costs
relate principally to previously incurred costs originally expected to be
collected through future revenues, including income tax benefits previously
flowed through to customers, deferred carrying charges on Byron Unit 2 and
Braidwood Units 1 and 2 nuclear generating plants, generation-related
unamortized loss on reacquired debt and other miscellaneous generation-related
costs. The regulatory asset for the unrecovered nuclear decommissioning costs
of currently retired nuclear plants was not written off, as the 1997 Act
provides for the ongoing recovery of decommissioning costs through regulated
rates. See "Regulatory Assets and Liabilities" and "Depreciation and
Decommissioning" in Note 1 of Notes to Financial Statements.

  In addition, ComEd has evaluated whether the recoverability of the costs of
its generating stations has been impaired as defined in SFAS No. 121,
Accounting for the Impairment of Long-Lived

                                       5
<PAGE>

Assets and for Long-Lived Assets to Be Disposed Of. This evaluation was
conducted to determine whether future revenues expected to be recovered from
electric supply services will be sufficient to cover the costs of its
generating assets. Notwithstanding the retirement and write-off of Zion
Station, as discussed below, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not necessary at this time. However, ComEd is
engaged in an ongoing examination of its assets and operations. If ComEd
retires or closes one or more additional generating plants prior to expected
retirement dates, further write-offs will be required.

  Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided for the recovery of changes in fossil and
nuclear fuel costs and the energy portion of purchased power costs as compared
to the fuel and purchased energy costs included in ComEd's base rates.
Elimination of the FAC requires ComEd to refund to customers any net FAC
charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax) or $0.12 per common share. These costs,
as well as deferred underrecovered energy costs of $19 million (after-tax) or
$0.08 per common share which ComEd would have been entitled to recover if the
FAC had remained in effect, were recorded as a reduction to operating results
in 1997. Additionally, the elimination of the FAC and a transition to market-
based pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Current projections of the market
price for uranium indicate that the expected incremental costs of mining and
milling uranium at such properties will exceed the expected market price for
uranium. Such costs are not expected to be recoverable in a competitive
market. A write down of ComEd's investment in uranium-related properties to
realizable value resulted in a charge in December 1997 of $60 million (after-
tax) or $0.28 per common share.

  Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. In April 1996, the FERC Order was
issued requiring utilities to file open access tariffs with regard to their
transmission systems. These tariffs set forth the terms, including prices,
under which other parties and the utility's wholesale marketing function may
use the utility's transmission system. ComEd has an approved open access
tariff with the FERC. The FERC Order requires the separation of the
transmission operations and wholesale marketing functions so as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of the FERC Order is that
it contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.

  ComEd's Response to Regulatory Changes. ComEd is responding, and is
undertaking a significant planning effort to respond further, to the
developments within the utility industry and the 1997 Act and its potential
for strandable investment. During the past several years, such efforts have
focused on cost reductions, including personnel reductions, efficiencies in
purchasing and inventory management, and an incentive compensation system
keyed to cost control and improvement in shareholder value. Notwithstanding
these efforts, ComEd's costs remain high in comparison to its neighboring
utilities. Although ComEd's operating results and financial condition have
historically been affected by various rate proceedings, ComEd expects that the
changes in the national and

                                       6
<PAGE>

Illinois electric energy marketplace, and ComEd's activities anticipating or
responding to them, will directly impact its operating results and financial
condition over the next several years.

  ComEd anticipates that the 1997 Act, and the resultant increasing
competition to supply energy in Illinois and elsewhere, will have significant
effects upon its revenues and assets as it takes steps to adjust its
operations and services to meet the changing market for electric energy. Both
Unicom and ComEd have been examining methods of positioning themselves and
their affiliates to deal with those effects and to address the developing
opportunities and challenges. ComEd has been engaged in a broad-based
examination of its assets and operations, particularly nuclear and fossil
generation and generation-related (i.e., fuel and inventory) assets, with a
view toward rationalizing their investment and operating costs against their
ability to contribute to the revenues of ComEd under various market scenarios.
Such an assessment involves the consideration of numerous factors, including
revenue contribution, operating costs, impacts on ComEd's service obligations,
purchase commitments and the impact of various options. Such options include
continued operation with accelerated depreciation, indefinite suspension from
operation, sale to a third party and retirement or closure. As discussed
below, ComEd recently ceased nuclear generation operations and retired
facilities at its Zion Station. If ComEd retired or closed one or more
additional generating plants, particularly a nuclear plant, such retirement
would have a material impact on Unicom and ComEd's financial position and
results of operations. See "Liquidity and Capital Resources--UNREGULATED
OPERATIONS" below regarding Unicom Energy Services.

  On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42
per common share. The decision to close Zion Station was a result of an
ongoing analysis, which ComEd performed regarding the economic value of its
generating assets in light of the expected changes in the manner in which
electric energy is marketed and sold. The passage of the 1997 Act provided a
clearer basis for evaluating the costs and benefits of alternative courses of
action. In reaching the decision to cease nuclear generation operations at
Zion Station, the Boards also considered the significant uncertainty
associated with continued operation of the station due to the degradation of
the steam generators, and the expected operating costs associated with
continued station operation.

  Notwithstanding the closure of Zion Station as a nuclear generating
facility, a portion of the station will continue to be used to provide voltage
support in the transmission system that serves ComEd's northern region. Such
support will require capital expenditures at the station as well as upgrades
to the transmission system at various points, in order to improve the ability
to import and transport power through the system. See Note 5 of Notes to
Financial Statements for additional information.

  In April 1996, ComEd announced that it had finalized agreements to sell two
of its coal-fired generating stations, representing 1,600 megawatts of
generating capacity. Under the agreements, State Line and Kincaid stations are
expected to be sold for a total of $250 million, which approximates the book
value of the stations. The net proceeds are expected to be approximately $200
million (after-tax), which will be used to retire or redeem existing debt.
Under the terms of the sales, ComEd will enter into exclusive 15-year
purchased power agreements for the output of the plants. On March 31, 1997,
the ICC issued an order approving the agreements. A subsequent appeal has been
dropped by the intervening parties. The sale of State Line Station for its
approximate book value was finalized in December 1997. The net proceeds of the
sale, after income tax effects and closing costs, were approximately $56
million. The Kincaid Station sale is expected to be finalized during the first
quarter of 1998.

                                       7
<PAGE>

  ComEd joined with eight Midwestern utilities in the formation of a regional
Midwest ISO in January 1998. The Midwest ISO is a key element in accommodating
the restructuring of the electric industry and will promote enhanced
reliability of the transmission system, equal access to the transmission
system and increased competition. The Midwest ISO will establish an
independent body that will ultimately take over direction of the management of
the transmission system for the utilities involved. ComEd will retain
ownership of its transmission lines. The formation of the Midwest ISO is
subject to FERC approval.

LIQUIDITY AND CAPITAL RESOURCES

                              UTILITY OPERATIONS

  Construction Program. ComEd has a construction program for the year 1998,
which consists principally of improvements to its existing nuclear and other
electric production, transmission and distribution facilities. It does not
include funds to add new generating capacity to ComEd's system. The program,
as currently approved by ComEd, includes the following estimated expenditures
(excluding nuclear fuel expenditures of approximately $160 million):

<TABLE>
<CAPTION>
                                                                        1998
                                                                     -----------
                                                                      (MILLIONS
                                                                     OF DOLLARS)
   <S>                                                               <C>
   Production.......................................................    $425
   Transmission and Distribution....................................     415
   General..........................................................      90
                                                                        ----
                                                                        $930
                                                                        ====
</TABLE>

  Such estimated expenditures include $130 million toward the replacement of
the steam generators at ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear
generating units by year-end 1998. The total replacement cost is estimated to
be $455 million, of which approximately $295 million has been incurred through
December 31, 1997 and $30 million will be incurred in 1999.

  ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power or
the development of additional demand-side management resources, in 1998 and
each year thereafter. However, ComEd believes that adequate resources,
including cost-effective demand-side management resources, non-utility
generation resources and other-utility power purchases, could be obtained in
sufficient quantities to meet such forecasted needs.

  Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $286 million at December 31, 1997. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:

<TABLE>
<CAPTION>
      CONTRACT                                          PERIOD   COMMITMENT (1)
   --------------                                      --------- --------------
   <S>                                                 <C>       <C>
   Black Butte Coal Co................................ 1998-2000     $  679
   Decker Coal Co..................................... 1998-2014        427
   Other commitments.................................. 1998              25
                                                                     ------
                                                                     $1,131
                                                                     ======
</TABLE>
  --------
  (1) In millions of dollars, excluding transportation costs. No estimate of
      future cost escalation has been made.

For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 23 of Notes to
Financial Statements.

  Capital Resources. ComEd forecasts that internal sources will provide
approximately three-fourths of the funds required for ComEd's 1998
construction program and other capital requirements, including nuclear fuel
expenditures, contributions to nuclear decommissioning funds, sinking fund

                                       8
<PAGE>

obligations and refinancing of scheduled debt maturities. See Notes 10 and 12
of Notes to Financial Statements for the summaries of the annual sinking fund
requirements and scheduled maturities for ComEd preference stock and long-term
debt, respectively. The forecast takes into consideration the 1997 Act. See
"Changes in the Electric Utility Industry" above and "Regulation," subcaption
"Rate Matters" below for additional information.

  The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing is expected to be provided through
the continued sale and leaseback of nuclear fuel through ComEd's existing
nuclear fuel lease facility. See Note 21 of Notes to Financial Statements for
additional information concerning ComEd's nuclear fuel lease facility. ComEd
has $758 million of unused bank lines of credit at December 31, 1997, which
may be borrowed at various interest rates and may be secured or unsecured. The
interest rate is set at the time of a borrowing and is based on several
floating rate bank indices plus a spread, which is dependent upon the credit
ratings of ComEd's outstanding first mortgage bonds or on a prime interest
rate. Collateral, if required for the borrowings, would consist of first
mortgage bonds issued under and in accordance with the provisions of ComEd's
mortgage. See Note 13 of Notes to Financial Statements for additional
information concerning lines of credit. See the Statements of Consolidated
Cash Flows for the construction expenditures and cash flow from operating
activities for the years 1997, 1996 and 1995.

  During 1997, ComEd sold and leased back $150 million of nuclear fuel through
its existing nuclear fuel lease facility. In 1997, ComEd issued $150 million
principal amount of 7.375% Notes due January 15, 2004, $150 million principal
amount of 7.625% Notes due January 15, 2007 and $150 million principal amount
of 8.50% Trust Securities due January 15, 2027, the proceeds of which were
used to discharge current maturities of long-term debt and to redeem $200
million principal amount of first mortgage bonds. See the Statements of
Consolidated Cash Flows and Note 7 of Notes to Financial Statements for
information regarding common stock activity.

  As of January 30, 1998, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $505 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.

  ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies as follows:

<TABLE>
<CAPTION>
                                                                STANDARD DUFF &
                                                        MOODY'S & POOR'S PHELPS
                                                        ------- -------- ------
     <S>                                                <C>     <C>      <C>
     First mortgage and secured pollution control
      bonds............................................  Baa2     BBB     BBB
     Publicly-held debentures and unsecured pollution
      control obligations..............................  Baa3     BBB-    BBB-
     Convertible preferred stock.......................  baa3     BBB-    BBB-
     Preference stock..................................  baa3     BBB-    BBB-
     Trust Securities..................................  baa3     BBB-    BBB-
     Commercial paper..................................  P-2      A-2     D-2
</TABLE>

  In January 1997, Moody's changed the rating outlook on ComEd's securities
from "stable" to "negative" and Duff & Phelps added ComEd's securities to
"Rating Watch-Down." As of January 1998, S&P's rating outlook on ComEd
remained "stable."

  Capital Structure. ComEd's ratio of long-term debt to total capitalization
has increased to 48.5% at December 31, 1997 from 46.1% at December 31, 1996.
This increase is related primarily to the write-offs recorded in the fourth
quarter of 1997 due to the discontinuance of regulatory accounting practices
for generation-related assets and the closure of Zion Station. Also as a
result of such write-offs, Unicom's retained earnings account had a deficit
balance of $21.2 million at December 31, 1997. As of December 31, 1997, $331
million of retained earnings had been appropriated for future dividend
payments.

                                       9
<PAGE>

  Year 2000 Conversion. Unicom, including ComEd, uses various software,
systems and technology throughout its businesses that will be affected by the
date change in the Year 2000 and any failure to address Year 2000 issues in a
timely manner could result in a material operational or financial risk.
Unicom's approach to addressing Year 2000 compliance issues is to upgrade or
remediate software, systems and technology that are not Year 2000 compliant
and that are not otherwise being replaced in accordance with Unicom's business
plans. Unicom is in the process of replacing certain of its financial, human
resources, payroll, and customer service and billing software with new
software that is Year 2000 compliant. In other cases, Unicom is upgrading
existing software to versions that are Year 2000 compliant where such upgrades
are available. In cases where Unicom has determined that it is not appropriate
to replace existing software that is not Year 2000 compliant, and that Year
2000-compliant upgrades are not available, Unicom is remediating the software
to make it Year 2000 compliant. Accordingly, Unicom is upgrading or
remediating certain software and systems in its nuclear and fossil electricity
generation business units and in its transmission and distribution and supply
management business units. Unicom is also in the process of evaluating whether
Year 2000 compliance issues will affect any of its key suppliers. The schedule
for the implementation of new Year 2000-compliant software and upgraded
versions of existing software, and the remediation of software not being
replaced or upgraded, contemplates that such efforts will be completed by the
end of 1998, except in the nuclear generation business unit, where completion
is scheduled for the third quarter of 1999. The total cost of remediating or
upgrading software, that is not being replaced or upgraded in accordance with
business plans, is currently estimated to be approximately $20 million.

  Market Risks. ComEd is exposed to market risk due to changes in interest
rates and changes in the market price for electricity. Exposure for interest
rate changes relates to its long-term debt and preferred equity obligations.
Exposure to electricity market price risk relates to forward activities taken
to effectively manage the supply of, and demand for, the electric generation
capability of ComEd's generating plants. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes.

                                      10
<PAGE>

  Interest Rate Exposure. The table below provides the fair value and average
interest, or fixed dividend rate, of Unicom's outstanding debt and preferred
stock equity instruments at December 31, 1997.

<TABLE>
<CAPTION>
                                                                            FAIR
                                EXPECTED MATURITY DATE                    VALUE AS
  UNICOM AND SUBSIDIARY   ----------------------------------------           OF
  COMPANIES (MILLIONS)    1998  1999  2000  2001  2002  THEREAFTER TOTAL  12/31/97
  ---------------------   ----  ----  ----  ----  ----  ---------- ------ --------
<S>                       <C>   <C>   <C>   <C>   <C>   <C>        <C>    <C>
Long-Term Debt-
 Fixed Rate.............  $355  $152  $464  $111  $308    $4,296   $5,686  $6,020
 Average Interest Rate..   6.6%  8.8%  7.2%  7.4%  7.9%      8.0%
 Variable Rate..........  $150  $160  $ --  $ --  $ --    $  292   $  602  $  602
 Average Interest Rate..   6.5%  7.0%                        3.7%
Preferred and Preference
 Stock-
 Subject to Mandatory
  Redemption............  $ 31  $ 18  $ 88  $ 18  $ 18    $   33   $  206  $  209
 Average Dividend Rate..   8.9%  8.8%  7.3%  8.8%  8.8%      8.8%
 Not Subject to Manda-
  tory Redemption.......  $ --  $ --  $ --  $ --  $ --    $  507   $  507  $  515
 Average Dividend Rate..                                     8.2%
Trust Securities........  $ --  $ --  $ --  $ --  $ --    $  350   $  350  $  372
 Average Dividend Rate..                                     8.5%
</TABLE>

  Market Price Exposure. In the normal course of business, ComEd utilizes
contracts for the forward sale and purchase of electricity to effectively
manage the utilization of its available generating capability. Such contracts
include forward contracts for wholesale sales of generating capability, during
periods when ComEd's available generating capability is expected to exceed the
demands of its retail, or native load, customers. Such contracts may also
include forward contracts for the purchase of generating capability during
periods when the expected market price for electricity is below ComEd's
expected incremental cost of generation. A sensitivity analysis has been
performed which concluded that the market price risk exposure of these
transactions is not material.

  The market price of electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. To limit the
market price risk associated with the forward commodity contracts described in
the preceding paragraph, ComEd has utilized energy put and call option
contracts and energy swap arrangements. A sensitivity analysis has been
performed which indicates that the market price risk exposure of these
financial instruments is not material.

                            UNREGULATED OPERATIONS

  Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by state or federal
agencies. One of these subsidiaries, UT Holdings, provides district cooling
and related services to offices and other buildings in the city of Chicago
under a non-exclusive use agreement with Chicago for an initial term expiring
in 2014. District cooling involves, in essence, the production of chilled
water at one or more central locations and its circulation to customers'
buildings through a closed circuit of supply and return piping. Such water is
circulated through customers' premises primarily for air conditioning. This
process is used by customers in lieu of self-generated cooling. As a result of
the Clean Air Amendments, the manufacture of CFCs has been curtailed since
January 1996, thereby creating a marketing opportunity for non-CFC based
systems, such as UT Holdings' district cooling. UT Holdings is involved in
district cooling projects in other cities, generally working with the local
utilities.

  Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services including gas services, performance contracting,
distributed energy and active energy management systems. In 1997, Unicom
Energy Services entered into a joint venture with Sonat Marketing Company L.P.
to market natural gas and related services to large gas purchasers within
ComEd's service area in Northern Illinois and other Midwestern areas. As an
entry into the distributed energy market, Unicom Energy Services also entered
into an alliance with Allied Signal Power Systems, Inc., a subsidiary of
Allied Signal Inc., to market, install and service an electric

                                      11
<PAGE>

energy generator developed by AlliedSignal, known as a TurboGenerator, in a
12-state region and the providence of Ontario, Canada. Unicom Energy Services
recently entered into an exclusive national distributorship agreement with
Engage Networks, Inc. to market active energy management software and related
hardware and services. As of December 31, 1997, Unicom Energy Services had
purchase commitments of approximately $7 million.

  Construction Program. Unicom has approved capital expenditures for 1998 of
approximately $92 million for UT Holdings. UT Holdings has four district
cooling facilities serving customers in Chicago. Its third and fourth district
cooling facilities are being expanded to provide increased output for 1998 and
1999, respectively. As of December 31, 1997, UT Holdings' purchase
commitments, principally related to construction, were approximately $11
million.

  Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. The availability of ComEd's dividends
to Unicom is dependent on ComEd's financial performance and cash position.
Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, none of which is
expected, would be subject to prior approval by the ICC.

  Unicom Enterprises has a $200 million credit facility which will expire in
November 1999, of which $40 million was unused as of December 31, 1997. The
credit facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including UT Holdings and Unicom Energy
Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Interest rates for borrowings under the credit
facility are set at the time of a borrowing and are based on either a prime
interest rate or a floating rate bank index plus a spread which varies with
the credit rating of ComEd's outstanding first mortgage bonds. See Note 13 of
Notes to Financial Statements for additional information regarding certain
covenants with respect to Unicom and Unicom Enterprises' operations.

REGULATION

  ComEd and the Indiana Company are subject to state and federal regulation in
the conduct of their respective businesses, including the operations of
Cotter. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect operational and capital expenditures.

  Rate Matters. In January 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for an increase in ComEd's total revenues
of approximately $302 million (excluding add-on revenue taxes) on an annual
basis. The rates provided in the Rate Order became effective on January 14,
1995; however, they are being collected subject to refund as a result of
subsequent judicial action. The Rate Order was appealed by intervenors and
ComEd to the Illinois Appellate Court, which issued a decision on May 30, 1997
affirming the Rate Order in all respects with the exception of two issues,
which it remanded to the ICC for the purpose of providing further analysis.
Those issues relate to: (i) the manner in which certain costs are recovered
and which customers should pay those costs, and (ii) the proper rate of return
on common equity for ComEd. ComEd believes that the ICC can satisfy the
Appellate Court's remand directions on the basis of the existing record from
the ICC proceedings which led to the Rate Order. The Appellate Court's
decision was not appealed and the matter was returned to the ICC, where a
decision is expected early in the second quarter of 1998.

  With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC

                                      12
<PAGE>

had determined in the Rate Order that ComEd's cost of common equity was
12.28%. Intervenors had submitted testimony recommending a return on common
equity of 11.50%. The Appellate Court decision requires the ICC to clarify the
basis for certain of its findings relating to its rejection of the
intervenors' recommendation and to analyze further how it arrived at its
conclusions. The Appellate Court stated that after reanalyzing these bases the
ICC can determine whether or not the cost of common equity determination it
adopted should still be followed. Each tenth of one percent change in the rate
of return on common equity has approximately an $8 million effect on the level
of annual revenues. The Appellate Court's decision does not have any immediate
effect on ComEd's rates or require any refunds. In connection with the
initiation of the appeal, ComEd committed to make refunds "in the event that a
final, non-appealable order is entered reversing the ICC's Rate Order."
Revenues of approximately $195 million would be subject to refund if the ICC
were to adopt the lower rate of return on common equity recommended by
intervenors. An ICC Hearing Examiner issued a proposed order in January 1998,
which if adopted by the ICC, would uphold the Rate Order and the associated
$302 million revenue increase on an annual basis.

  See "Changes in the Electric Utility Industry" above for information
regarding the 1997 Act.

  Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M
expenditures and the ability of nuclear power plants to produce electric
energy at a relatively low marginal cost. ComEd operates a large number of
nuclear plants, ranging from the older Dresden and Quad Cities stations to the
more recently completed LaSalle, Byron and Braidwood stations, and is intent
upon safe, reliable and efficient operation. These plants were constructed
over a period of time in which technology, construction procedures and
regulatory initiatives and oversight have evolved, with the result that older
plants generally require greater attention and resources to meet regulatory
requirements and expectations as well as to maintain operational reliability.
As discussed in "Changes in the Electric Utility Industry" above, ComEd is
closing its Zion Station.

  ComEd's Dresden, Zion and LaSalle nuclear generating stations are currently
on the NRC's list of plants to be monitored closely. Dresden Station has been
on the list since 1992 and LaSalle and Zion stations were added in January
1997. On January 21, 1998, the NRC stated that although Dresden Station has
demonstrated sustained improved performance that would warrant removal from
the list, continued evidence of cyclical performance at ComEd's other nuclear
generating stations indicate Dresden Station did not meet all the criteria for
removal from the list. At its January 21, 1998 meeting, the NRC acknowledged
improvements at LaSalle Station but concluded that a substantial amount of
work remains and the plant should remain on the list. The NRC also stated
that, based on a determination made prior to the announcement of the cessation
of power operations at the station, Zion should remain on the list. The
listing of the plants does not prevent ComEd from operating the generating
units; however, it does mean that the NRC will devote additional resources to
monitoring ComEd's operating performance and that ComEd will need to work to
demonstrate to the NRC the sustainability of improvements which it believes it
has undertaken and is continuing to implement. Also at the meeting, the NRC
noted a declining performance trend at Quad Cities Station. The NRC stated
that although operations performance at Quad Cities Station was generally
good, weaknesses were observed with respect to certain maintenance and
engineering activities. The NRC has indicated that it is monitoring ComEd's
ability to manage its nuclear operations in their entirety and that the
performance at any one facility will be viewed by the NRC in context with the
performance of ComEd's nuclear generating group as a whole.

  In January 1997, the NRC took the unusual additional step of requiring ComEd
to submit information to allow the NRC to determine what actions, if any,
should be taken to assure that ComEd can safely operate its six nuclear
generating stations while sustaining performance improvement at each site. The
request also required ComEd to submit information regarding the criteria that
it has established, or planned to establish, to measure performance and to
explain ComEd's proposed actions if the criteria were not met. The request
stated the NRC staff's concerns with the "cyclical

                                      13
<PAGE>

safety performance of ComEd nuclear stations," noting the presence on the list
of plants to be monitored closely of Dresden, LaSalle and Zion stations at
various times during the past 10 years. It also noted concerns regarding
"ComEd's ability to establish lasting and effective programs that result in
sustained performance improvement." The problems identified by the NRC are
consistent with weaknesses that had been identified in station self-
assessments initiated by ComEd, and management had already undertaken to
develop and implement programs designed to address these issues. ComEd
submitted a response to the NRC on March 28, 1997 and the NRC indicated in an
April 25, 1997 public meeting with representatives of ComEd management that
ComEd's response was generally adequate to demonstrate ComEd's ability to
operate its nuclear generating stations while sustaining performance
improvements. In a November 4, 1997 meeting with the NRC staff, the NRC
indicated that it believes ComEd's nuclear performance has shown improvement,
but that it is too early to conclude that lasting improvement has been
achieved. The NRC noted, as an exception to ComEd's general improving and
sustained performance in its nuclear operations, concerns regarding ComEd's
engineering efforts to resolve the longstanding fire protection issues at the
Quad Cities Station. The NRC and representatives of ComEd's management have
met and will continue to meet periodically in the future, to follow-up on
these matters.

  ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. Over the
past several years, it has increased and reinforced station management with
managers drawn from other utilities which have resolved similar operational
and performance issues, including the appointment of a new Chief Nuclear
Officer in late 1997. It has also sought to identify, anticipate and address
operating and performance issues in a safe, cost-effective manner, while
seeking to improve the availability and capacity factors of its nuclear
generating units.

  ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment and can result in longer unit outages. LaSalle Units
1 and 2 and Quad Cities Units 1 and 2 are currently not operating. ComEd is
developing an integrated schedule for restarting the units at LaSalle Station.
It currently is expected that LaSalle Unit 1 will restart in the third quarter
of 1998 and LaSalle Unit 2 is expected to restart approximately six months
later. Both units at Quad Cities Station are expected to return to service in
the Spring of 1998.

  The LaSalle outage and an outage at Zion were part of several outages of
nuclear and fossil generating stations that several utilities operating in the
Midwestern power grid (including ComEd) were expecting and experienced during
1997. Although ComEd met its customers' electricity demands, the expectation
of the NERC, prior to the beginning of the summer, had been that there could
have been electric energy shortages during summer peak demand periods due to
generating station outages in the Midwestern power grid and transmission
limitations on delivering power from neighboring systems. In response to these
regional circumstances and expectations, ComEd increased the availability of
its remaining nuclear and fossil generating capacity, reinforced transmission
capacity, negotiated the purchase of power and related transmission service
from third parties, and worked with a number of customers to manage the use
and demand for power. The NERC will be analyzing electric reliability for the
summer of 1998 in light of the potential for continued outages of nuclear
plants operated by several utilities in the Midwestern power grid.

  Generating station availability and performance during a year may be issues
in fuel reconciliation proceedings in assessing the prudence of fuel and power
purchases during such year. Final ICC orders have been issued in fuel
reconciliation proceedings for years prior to 1994 and for the year 1995. In
1996, an intervenor filed testimony in the fuel reconciliation proceeding for
1994 seeking a refund of approximately $90 million relating to nuclear station
performance. The 1997 Act provides that the fuel reconciliation proceedings
for 1994 and 1996 must be concluded by the end of 1998. If refunds are
required in these proceedings, the refunds could have a material effect on
results of

                                      14
<PAGE>

operations. The 1997 Act also provides that, because ComEd eliminated its FAC
effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 and subsequent years. See "Changes in the
Electric Utility Industry" above for information regarding the elimination of
ComEd's FAC.

  Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates it will expend approximately $12.9 billion, including a
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by external
decommissioning trusts which ComEd established in compliance with Illinois law
and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption
of or changes to NRC regulations as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste, and inflation. See Note 1 of Notes to
Financial Statements under "Depreciation and Decommissioning" for additional
information.

  Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses and changes in operating procedures. See
Note 23 of Notes to Financial Statements.

RESULTS OF OPERATIONS

  Unicom reported a loss per common share of $3.94 in 1997 and earnings per
common share of $3.09 and $2.98 in 1996 and 1995, respectively. Substantially
all of the results of operations for Unicom are the results of operations for
ComEd. The results of Unicom's unregulated subsidiaries are not material to
the results of Unicom and subsidiary companies as a whole. As such, the
following section discusses the effect of ComEd's operations on Unicom's
financial results.

  Net Income (Loss). The loss for 1997 was primarily due to ComEd's
discontinuation of regulatory accounting practices for the generation portion
of its business and other charges recorded as a result of the 1997 Act. The
1997 results also include the write-off for the closure of the Zion nuclear
generating station.

  ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the 1997 Act.
Accordingly, ComEd's generation-related net regulatory assets (which represent
assets and liabilities properly recorded under regulatory accounting practices
but which would not be recorded under GAAP for non-regulated entities) were
written off, resulting in an extraordinary charge of $810 million (after-tax)
or $3.75 per common share.

  In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge of $44 million (after-tax) or
$0.20 per common share. The reduction includes $25 million (after-tax) or
$0.12 per common share in net FAC charges billed to its customers in 1997,
which will be refunded to customers in 1998. The reduction also includes a
write-off of $19 million (after-tax) or $0.08 per common share in
underrecovered energy costs that ComEd would have been entitled to recover if
the FAC had remained in effect.

  Also, 1997 results include the write down of ComEd's investment in uranium-
related properties to reflect costs which are not expected to be recovered in
a competitive market. The write down resulted in a charge of $60 million
(after-tax) or $0.28 per common share.

  Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive

                                      15
<PAGE>

to January 1, 1997. This change in accounting method had a positive impact of
$170 million (after-tax) or $0.79 per common share, consisting of a one-time
cumulative effect of the change for years prior to 1997 of $197 million
(after-tax) or $0.91 per common share, less the impact of the change on 1997
results of $27 million (after-tax) or $0.12 per common share.

  On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the cessation of nuclear generation operations at ComEd's Zion Station. The
closure resulted in a charge for 1997 of $523 million (after-tax) or $2.42 per
common share, reflecting the write-off of the unrecoverable portion of the
cost of plant and inventories and a liability for future closing costs.

  ComEd's kilowatthour sales, including sales to wholesale customers,
increased 5% during 1997 compared to 1996, as discussed below. In 1997 O&M
expenses increased by 12%, as discussed below.

  Also reducing 1997 operating results were increased fuel and purchased power
costs of $336 million, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation resulted in a charge of $23 million (after-tax) or $0.11 per
common share.

  The 1996 results reflect, among other factors, a 1% decrease in overall O&M
expenses as compared to 1995 and the positive effects of an income tax refund
related to prior years with an increase in operating results of $26 million
(after-tax) or $0.12 per common share and a reduction in real estate taxes
with an increase in operating results of $28 million (after-tax) or $0.13 per
common share. Approximately half of the reduction in real estate taxes is
related to the year 1995. The real estate tax reduction results primarily from
ongoing challenges by ComEd of the methodology used by local taxing
authorities to assess the value of ComEd's nuclear generating stations. The
1996 results also reflect a 9% reduction in the total of interest expense on
debt and dividend requirements on preferred and preference stocks compared to
1995, largely due to the early retirement of debt at the end of 1995. In
September 1996, the ICC approved ComEd's request to increase depreciation
charges on its nuclear generating units by $30 million for the year 1996,
resulting in a charge of $20 million (after-tax) or $0.09 per common share.

  The 1995 results reflect higher revenues, primarily as a result of higher
kilowatthour sales, and the higher rate levels, which became effective in
January 1995 under the Rate Order. The higher kilowatthour sales reflect the
unusually hot summer weather in 1995. The 1995 results were also affected by
higher O&M expenses, which reflect a charge of $59 million (after-tax) or
$0.27 per common share for a voluntary employee separation offer to certain
ComEd employees. ComEd also recorded a charge of $20 million (after-tax) or
$0.09 per common share related to the early redemption of $645 million of
long-term debt.

  Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory), revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities), and revenues from collections under its FAC for years prior to
1997 (which was intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates). Operating revenues are
affected by kilowatthour sales, rates and FAC recoveries. Kilowatthour sales,
in turn, are affected by weather, the level of economic activity within
ComEd's service area, and off-system or wholesale sales to other utilities.
Off-system sales opportunities are affected by a number of factors, including
nuclear generating availability and performance.

  During 1997, electric operating revenues increased $139 million, primarily
due to a 29% increase in kilowatthour sales to wholesale customers.
Kilowatthour sales to ultimate consumers during 1997 increased 1% compared to
1996, reflecting continued economic growth in ComEd's service territory.

                                      16
<PAGE>

Operating revenues in 1997 were reduced by the provision for revenue refunds
of $45 million, including revenue taxes, related to the elimination of the
FAC. Operating revenues increased $25 million in the year 1996, as compared to
1995, principally reflecting increased sales for resale and increased energy
cost recoveries under ComEd's then effective FAC, although kilowatthour sales
to ultimate consumers were down 1% from the prior year due to the cooler
summer weather compared to the exceptionally hot summer in the year 1995.
Operating revenues increased $632 million in the year 1995, as compared to the
year 1994, primarily due to an increase of 5% in kilowatthour sales to
ultimate consumers attributable to the hot summer weather, as well as a rate
increase that became effective in January 1995.

  Fuel Costs. Changes in fuel expense for the years 1997, 1996 and 1995
primarily resulted from changes in the average cost of fuel consumed, changes
in the mix of fuel sources of electric energy generated and changes in net
generation of electric energy. Fuel mix is determined primarily by system
load, the costs of fuel consumed and the availability of nuclear generating
units. The cost of fuel consumed, net generation of electric energy and fuel
sources of kilowatthour generation were as follows:

<TABLE>
<CAPTION>
                                                          1997    1996    1995
                                                         ------  ------  ------
   <S>                                                   <C>     <C>     <C>
   Cost of fuel consumed (per million Btu):
     Nuclear...........................................   $0.57   $0.53   $0.52
     Coal..............................................   $2.28   $2.41   $2.43
     Oil...............................................   $3.90   $3.41   $3.06
     Natural gas.......................................   $2.69   $2.75   $1.85
     Average all fuels.................................   $1.33   $1.17   $1.05
   Net generation of electric energy (millions of kilo-
    watthours).........................................  85,861  93,048  96,608
   Fuel sources of kilowatthour generation:
     Nuclear...........................................      57%     67%     73%
     Coal..............................................      39      30      24
     Oil...............................................     --        1     --
     Natural gas.......................................       4       2       3
                                                         ------  ------  ------
                                                            100%    100%    100%
                                                         ======  ======  ======
</TABLE>

  The decrease in nuclear generation as a percentage of total generation for
1997 compared to the prior years is primarily due to outages at certain of
ComEd's nuclear generating stations. See "Regulation," subcaption "Nuclear
Matters" above for information regarding outages at certain of ComEd's nuclear
generating stations.

  Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE.
ComEd's portion of such assessments is estimated to be approximately $15
million per year (to be adjusted annually for inflation) to the year 2007. The
Act provides that such assessments are to be treated as a cost of fuel. See
Note 1 of Notes to Financial Statements under "Nuclear Fuel," for information
related to the accounting for such costs.

  Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
fuel. ComEd's coal costs, however, are high compared to those of other
utilities. ComEd's western coal contracts and its rail contracts for delivery
of the western coal provide for the purchase of certain coal at prices
substantially above currently prevailing market prices, and ComEd has
significant purchase commitments under its contracts. In addition, as of
December 31, 1997, ComEd had coal reserves of $282 million. In prior years,
ComEd's commitments for the purchase of coal exceeded its requirements. Rather
than take all the coal it was required to take, ComEd agreed to purchase the
coal in place in the form of coal reserves. For additional information
concerning ComEd's coal purchase commitments, fuel reconciliation

                                      17
<PAGE>

proceedings and coal reserves, see "Liquidity and Capital Resources" above and
"Coal Reserves" in Note 1 of Notes to Financial Statements.

  Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd and the Indiana Company's generating units and
the availability and cost of power from other utilities. Purchased power costs
increased $255 million in 1997 compared to 1996, primarily due to outages at
certain of ComEd's nuclear generating stations. See "Regulation," subcaption
"Nuclear Matters" above, for information regarding outages at certain of
ComEd's nuclear generating stations.

  The number and average cost of kilowatthours purchased were as follows:

<TABLE>
<CAPTION>
                                                            1997   1996   1995
                                                           ------  -----  -----
   <S>                                                     <C>     <C>    <C>
   Kilowatthours (millions)............................... 16,672  6,129  2,475
   Cost per kilowatthour..................................   2.40c  2.37c  2.60c
</TABLE>

  Purchased power is expected to increase in the year 1998 compared to the
year 1997 due to expected increased kilowatthour sales, lower nuclear
generation and higher costs for power purchased from other utilities.

  Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for
the years 1997, 1996 and 1995 include the net change in under or overrecovered
allowable energy costs under ComEd's FAC. Operating expenses in 1997 also
reflect the write-off of the unrecoverable energy costs related to the
elimination of ComEd's FAC. See "Changes in the Electric Utility Industry,"
"Fuel Costs" and "Fuel Supply" above and Note 1 of Notes to Financial
Statements under "Fuel Adjustment Clause."

  Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets as well as customer service, administrative overhead and
support. Given the variety of expense categories covered, there are a number
of factors which affect the level of such expenses within any given year. Two
major components of such expenses, however, are the costs associated with
operating and maintaining ComEd's nuclear and fossil generating facilities.
Generating station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities as well as cost control
efforts.

  During the three years presented in the financial statements, the aggregate
level of O&M expenses increased 12% in 1997 compared to 1996, decreased 1% in
1996 compared to 1995, and increased 4% in 1995 compared to 1994. All three
years include increases in the level of generating station expenses, as
discussed below. The year to year variations reflect efforts in 1996 and 1997
to improve nuclear generating station availability as well as to meet
regulatory requirements and expectations, and the impact in 1995 of an early
separation program offered to ComEd's employees, which resulted in a $97
million charge. Additional factors in each year also affected the level of O&M
expenses.

  O&M expenses associated with nuclear generating stations increased $122
million, $88 million and $32 million for the years 1997, 1996 and 1995,
respectively, as a result of activities associated with the repair,
replacement and improvement of nuclear generating facility equipment. Since
1995, ComEd has increased the number and scope of maintenance activities
associated with its nuclear generating stations. Such efforts are the result
of station performance evaluations performed to identify the sources and
causes of unplanned equipment repairs. The goal of such efforts is to design
and implement cost effective repairs and improvements to increase station
availability. The efforts begun in 1995 are expected to continue through 1998.

  The increase in O&M expenses associated with nuclear generating stations has
been driven by ComEd's objective to improve station availability, as well as
to meet regulatory requirements and expectations. ComEd is pursuing a program
to improve the quality of nuclear operations, including

                                      18
<PAGE>

safety and efficiency, which is also expected to achieve a longer term goal of
improved availability and to be positioned to take advantage of opportunities
in a more competitive market. During the three years presented in the
financial statements, ComEd increased and reinforced station management with
managers drawn from other utilities which have resolved similar operating
issues. It has also sought to identify, anticipate and address nuclear station
operation and performance issues in a safe, cost-effective manner, while
seeking to improve the availability and capacity factors of its nuclear
generating units. Such activities have included improvements in operating and
personnel procedures and repair and replacement of equipment, and can result
in longer unit outages. Such activities have involved increased maintenance
and repair expenses in recent years.

  O&M expenses associated with fossil generating stations increased $31
million, $4 million and $3 million for the years 1997, 1996 and 1995,
respectively. The increase related to fossil generating stations in 1997 is
primarily due to an increase in the repair and improvement of fossil
generating facility equipment in order to increase their general availability,
and to ensure their availability during the Summer of 1997. That increase was
partially offset by a reduction in personnel.

  O&M expenses associated with transmission and distribution facilities
increased $15 million and $11 million for the years 1997 and 1996,
respectively, and decreased $3 million for the year 1995. The 1997 increase is
primarily due to increased emergency restoration of electric service and tree
trimming costs. The 1996 increase reflects higher maintenance expenses. The
decrease in 1995 reflects cost control efforts. O&M expenses associated with
customer-related activities increased $11 million, $17 million and $10 million
for the years 1997, 1996 and 1995, respectively. The increase in 1997 is
primarily due to an increase in uncollectible accounts.

  O&M expenses also include compensation and benefits expenses. Since 1995,
ComEd has reduced the size of its workforce by offering incentives for
employees to leave the company voluntarily. Such incentives included both
current payments and earlier eligibility for post-retirement health care
benefits, resulting in charges of $39 million, $12 million and $97 million for
the years 1997, 1996 and 1995, respectively.

  Other compensation and benefits expenses, excluding the effects of employee
separation plans, decreased $14 million, $20 million and $65 million for 1997,
1996 and 1995, respectively. The decrease in 1997 is primarily due to a
reduction in medical costs for active employees. The decreases in 1996 and
1995 are primarily related to a reduction of post-retirement health care
benefits costs, primarily as a result of a plan amendment effected in mid-1995
which required retired employee contributions to the plan for the first time.
Favorable experience also allowed the use of lower health care cost trend
rates, producing a lower charge in 1996 and 1995. O&M expenses also reflect
$41 million, $38 million and $65 million for employee incentive compensation
plan costs for the years 1997, 1996 and 1995, respectively. The payments,
which were made partly in cash and partly in shares of Unicom common stock,
were made under Unicom's Incentive Plans as the result of the achievement
during the indicated years of specified financial performance, operating
performance and increased shareholder value. The effects of inflation have
also increased O&M expenses during the years and are also reflected in the
increases and decreases discussed herein.

  O&M expenses in 1997 also include $25 million for the additional write-off
of obsolete materials and supplies compared to 1996. O&M expenses associated
with certain administrative and general costs increased $35 million for the
year 1997. This increase was due to a variety of reasons including an increase
in the provision for vacation pay liability.

  Depreciation. Depreciation expense increased for the years 1997, 1996 and
1995 as a result of additional nuclear plant depreciation and additions to
plant in service. The additional depreciation on ComEd's nuclear generating
units includes depreciation recorded for the year 1997 related to its steam
generators at Byron Unit 1 and Braidwood Unit 1 of $59 million, which are
expected to be replaced prior to year-end 1998, and the 1996 additional
depreciation initiative of $30 million. See "Depreciation and Decommissioning"
in Note 1 of Notes to Financial Statements.

                                      19
<PAGE>

  Interest on Debt. Changes in interest on long-term debt and notes payable
for the years 1997, 1996 and 1995 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on long-term debt also reflected new issues of debt, the
retirement and early redemption of debt, and the retirement and redemption of
issues which were refinanced at generally lower rates of interest. The average
amounts of ComEd's long-term debt and notes payable outstanding and average
interest rates thereon were as follows:

<TABLE>
<CAPTION>
                                                          1997    1996    1995
                                                         ------  ------  ------
   <S>                                                   <C>     <C>     <C>
   Long-term debt outstanding:
    Average amount (millions)..........................  $6,256  $6,644  $7,528
    Average interest rate..............................    7.65%   7.67%   7.78%
   Notes payable outstanding:
    Average amount (millions)..........................  $  153  $  230  $   51
    Average interest rate..............................    5.95%   5.79%   6.40%
</TABLE>

  Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the FASB is reviewing the
accounting for nuclear decommissioning costs and issued an exposure draft in
February 1996 requesting written comment. If current electric utility industry
accounting practices for such decommissioning costs are changed, annual
provisions for decommissioning could increase and the estimated cost for the
decommissioning of operating nuclear plants after retirement could be recorded
as a liability rather than as accumulated depreciation. Decommissioning costs
of currently retired nuclear plants are recorded as a liability. Unicom and
ComEd do not believe that such changes, if required, would have an adverse
effect on the results of operations due to ComEd's ability to recover
decommissioning costs through rates.

  Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements under "AFUDC."
AFUDC does not contribute to the current cash flow of Unicom or ComEd. ComEd
discontinued SFAS No. 71 regulatory accounting practices in December 1997 for
the generation-related portion of its business. As a result, ComEd will not
record AFUDC, but will capitalize interest costs on its generation-related
construction work in progress and nuclear fuel in process beginning in 1998.

  ComEd's ratios of earnings to fixed charges for the years 1997, 1996 and
1995 were 0.58, 2.90 and 2.79, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1997, 1996 and 1995 were 0.49, 2.48 and 2.39, respectively. Earnings for
1997 were inadequate to cover fixed charges and fixed charges and preferred
and preference stock dividend requirements by approximately $259 million and
$359 million, respectively. The deficiency is principally attributable to the
earnings impact of the closure of Zion Station.

  Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities, in particular, have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.

                                      20
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Unicom Corporation:

  We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Unicom Corporation (an Illinois corporation)
and subsidiary companies as of December 31, 1997 and 1996, and the related
statements of consolidated operations, retained earnings (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Unicom Corporation and
subsidiary companies as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.

  As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.

                                          Arthur Andersen LLP

Chicago, Illinois
January 30, 1998

                                      21
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                     STATEMENTS OF CONSOLIDATED OPERATIONS

  The following Statements of Consolidated Operations for the years 1997, 1996
and 1995 reflect the results of past operations and are not intended as any
representation as to results of operations for any future period. Future
operations will necessarily be affected by various and diverse factors and
developments, including changes in electric rates, regulation, population,
business activity, competition, taxes, environmental control, energy use,
fuel, cost of labor, purchased power and other matters, the nature and effect
of which cannot now be determined.

<TABLE>
<CAPTION>
                                               1997         1996        1995
                                            -----------  ----------  ----------
                                            (THOUSANDS EXCEPT PER SHARE DATA)
<S>                                         <C>          <C>         <C>
Operating Revenues........................  $ 7,083,022  $6,937,024  $6,910,045
                                            -----------  ----------  ----------
Operating Expenses and Taxes:
  Fuel....................................  $ 1,239,438  $1,157,855  $1,087,109
  Purchased power.........................      400,055     145,299      64,378
  Operation and maintenance...............    2,438,388   2,161,892   2,175,651
  Depreciation............................      989,817     953,700     898,034
  Recovery of regulatory assets...........       15,272      15,272      15,272
  Taxes (except income)...................      800,886     783,531     833,297
  Income taxes............................      317,778     489,545     526,518
  Investment tax credits deferred--net....      (31,015)    (33,378)    (28,710)
                                            -----------  ----------  ----------
                                            $ 6,170,619  $5,673,716  $5,571,549
                                            -----------  ----------  ----------
Operating Income..........................  $   912,403  $1,263,308  $1,338,496
                                            -----------  ----------  ----------
Other Income and (Deductions):
  Interest on long-term debt..............  $  (488,033) $ (515,285) $ (587,583)
  Interest on notes payable...............       (9,134)    (13,308)     (3,280)
  Allowance for funds used during con-
   struction--
    Borrowed funds........................       18,555      19,426      11,137
    Equity funds..........................       23,770      20,776      13,129
  Income taxes applicable to nonoperating
   activities.............................       11,230       7,812       5,085
  Provision for dividends--
    Preferred and preference stocks of
     ComEd................................      (60,486)    (64,424)    (69,961)
    ComEd-obligated mandatorily redeemable
     preferred securities of subsidiary
     trusts holding solely ComEd's subor-
     dinated debt securities..............      (28,860)    (16,960)     (4,428)
  Loss on nuclear plant closure...........     (885,611)        --          --
  Income tax effect of nuclear plant clo-
   sure...................................      362,952         --          --
  Miscellaneous--net......................      (96,001)    (35,245)    (43,062)
                                            -----------  ----------  ----------
                                            $(1,151,618) $ (597,208) $ (678,963)
                                            -----------  ----------  ----------
Net Income (Loss) Before Extraordinary
 Items and Cumulative Effect of Change in
 Accounting Principle.....................  $  (239,215) $  666,100  $  659,533
Extraordinary Losses Less Applicable In-
 come Taxes...............................     (810,335)        --      (20,022)
Cumulative Effect of Change in Accounting
 Principle................................      196,700         --          --
                                            -----------  ----------  ----------
Net Income (Loss).........................  $  (852,850) $  666,100  $  639,511
                                            ===========  ==========  ==========
Average Number of Common Shares Outstand-
 ing......................................      216,330     215,500     214,692
Basic and Diluted Earnings (Loss) Per Com-
 mon Share
  Earnings (Loss) Per Common Share Before
   Extraordinary Items and Cumulative Ef-
   fect of Change in Accounting Principle.  $     (1.10) $     3.09  $     3.07
  Extraordinary Losses Less Applicable In-
   come Taxes.............................        (3.75)        --        (0.09)
  Cumulative Effect of Change in Account-
   ing Principle..........................         0.91         --          --
                                            -----------  ----------  ----------
  Earnings (Loss) Per Common Share........  $     (3.94) $     3.09  $     2.98
                                            ===========  ==========  ==========
Cash Dividends Declared Per Common Share..  $      1.60  $     1.60  $     1.60
</TABLE>

  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.

                                      22
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            DECEMBER 31
                                                      ------------------------
                       ASSETS                            1997         1996
                       ------                         -----------  -----------
                                                      (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Utility Plant:
  Plant and equipment, at original cost (includes
   construction work in progress of $1,131 million
   and $1,034 million, respectively)................. $27,518,690  $27,900,632
  Less--Accumulated provision for depreciation.......  11,646,445   11,479,991
                                                      -----------  -----------
                                                      $15,872,245  $16,420,641
  Nuclear fuel, at amortized cost....................     906,043      973,961
                                                      -----------  -----------
                                                      $16,778,288  $17,394,602
                                                      -----------  -----------
Investments and Other Property:
  Nuclear decommissioning funds...................... $ 1,855,697  $ 1,456,360
  Subsidiary companies...............................      41,830      113,888
  Other, at cost.....................................     216,243      146,547
                                                      -----------  -----------
                                                      $ 2,113,770  $ 1,716,795
                                                      -----------  -----------
Current Assets:
  Cash............................................... $    18,519  $     8,729
  Temporary cash investments.........................     102,702       51,821
  Special deposits...................................         271        1,610
  Receivables--
    Customers........................................     873,418      568,155
    Other............................................     132,449      108,044
    Provisions for uncollectible accounts............     (17,544)     (12,893)
  Coal and fuel oil, at average cost.................     120,664      140,362
  Materials and supplies, at average cost............     255,338      324,485
  Deferred unrecovered energy costs..................         --        16,228
  Deferred income taxes related to current assets and
   liabilities.......................................     179,553      120,220
  Prepayments and other..............................     126,088      108,643
                                                      -----------  -----------
                                                      $ 1,791,458  $ 1,435,404
                                                      -----------  -----------
Deferred Charges and Other Noncurrent Assets:
  Regulatory assets.................................. $ 1,685,235  $ 2,434,807
  Coal reserves......................................     194,769      291,324
  Other..............................................     136,230      114,922
                                                      -----------  -----------
                                                      $ 2,016,234  $ 2,841,053
                                                      -----------  -----------
                                                      $22,699,750  $23,387,854
                                                      ===========  ===========
</TABLE>

   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.

                                       23
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31
                                                        -----------------------
            CAPITALIZATION AND LIABILITIES                 1997        1996
            ------------------------------              ----------- -----------
                                                        (THOUSANDS OF DOLLARS)
<S>                                                     <C>         <C>
Capitalization (see accompanying statements):
  Common stock equity.................................. $ 4,918,687 $ 6,104,380
  Preferred and preference stocks of ComEd--
    Without mandatory redemption requirements..........     507,053     507,342
    Subject to mandatory redemption requirements.......     174,328     217,901
  ComEd-obligated mandatorily redeemable preferred
   securities of subsidiary trusts holding solely
   ComEd's subordinated debt securities*...............     350,000     200,000
  Long-term debt.......................................   5,737,348   6,069,534
                                                        ----------- -----------
                                                        $11,687,416 $13,099,157
                                                        ----------- -----------
Current Liabilities:
  Notes payable--
    Commercial paper................................... $   150,000 $   121,000
    Bank loans.........................................       8,150       7,750
  Current portion of long-term debt, redeemable prefer-
   ence stock and capitalized lease obligations of sub-
   sidiary companies...................................     775,296     783,919
  Accounts payable.....................................     505,444     429,492
  Accrued interest.....................................     169,559     168,750
  Accrued taxes........................................     175,758     170,870
  Dividends payable....................................     107,001     101,850
  Customer deposits....................................      55,214      51,585
  Accrued plant closing costs..........................     135,000         --
  Other................................................     165,177      98,567
                                                        ----------- -----------
                                                        $ 2,246,599 $ 1,933,783
                                                        ----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
  Deferred income taxes................................ $ 3,850,308 $ 4,574,303
  Nuclear decommissioning liability for retired plants.   1,301,000     275,700
  Accumulated deferred investment tax credits..........     602,122     655,662
  Accrued spent nuclear fuel disposal fee and related
   interest............................................     692,673     657,448
  Obligations under capital leases of subsidiary compa-
   nies................................................     437,950     476,669
  Regulatory liabilities...............................     698,750     668,301
  Other................................................   1,182,932   1,046,831
                                                        ----------- -----------
                                                        $ 8,765,735 $ 8,354,914
                                                        ----------- -----------
Commitments and Contingent Liabilities (Note 23)
                                                        $22,699,750 $23,387,854
                                                        =========== ===========
</TABLE>

  *As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. The sole asset of ComEd Financing II, also a subsidiary
trust of ComEd, is $154.6 million principal amount of ComEd's 8.50%
subordinated deferrable interest debentures due January 15, 2027.

  The accompanying Notes to Financial Statements are an integral part of the
                               above statements.

                                      24
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   STATEMENTS OF CONSOLIDATED CAPITALIZATION

<TABLE>
<CAPTION>
                                                            DECEMBER 31
                                                      ------------------------
                                                         1997         1996
                                                      -----------  -----------
                                                      (THOUSANDS OF DOLLARS)
<S>                                                   <C>          <C>
Common Stock Equity:
  Common stock, without par value--
   Outstanding--216,659,480 shares and 215,954,625
    shares, respectively (excludes $7 million and $4
    million as of December 31, 1997 and 1996,
    respectively, held by trustee for Unicom Stock
    Bonus Deferral Plan)............................. $ 4,943,211  $ 4,929,909
  Preference stock expense of ComEd..................      (3,340)      (3,526)
  Retained earnings (deficit)........................     (21,184)   1,177,997
                                                      -----------  -----------
                                                      $ 4,918,687  $ 6,104,380
                                                      -----------  -----------
Preferred and Preference Stocks of ComEd--
  Without Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--13,499,549 shares.................. $   504,957  $   504,957
    $1.425 convertible preferred stock, cumulative,
     without par value--
     Outstanding--65,912 shares and 75,003 shares,
      respectively...................................       2,096        2,385
    Prior preferred stock, cumulative, $100 par value
     per share-- No shares outstanding...............         --           --
                                                      -----------  -----------
                                                      $   507,053  $   507,342
                                                      -----------  -----------
  Subject to Mandatory Redemption Requirements:
    Preference stock, cumulative, without par value--
     Outstanding--2,058,560 shares and 2,496,775
      shares, respectively........................... $   205,016  $   248,589
    Current redemption requirements for preference
     stock included in current liabilities...........     (30,688)     (30,688)
                                                      -----------  -----------
                                                      $   174,328  $   217,901
                                                      -----------  -----------
ComEd-Obligated Mandatorily Redeemable Preferred
 Securities of Subsidiary Trusts holding solely
 ComEd's subordinated debt securities................ $   350,000  $   200,000
                                                      -----------  -----------
Long-Term Debt:
  First mortgage bonds:
    Maturing 1997 through 2002--5 3/8% to 9 3/8%..... $ 1,060,000  $ 1,320,000
    Maturing 2003 through 2012--3.70% to 8 3/8%......   1,440,400    1,440,400
    Maturing 2013 through 2022--5.85% to 9 7/8%......   1,791,000    1,991,000
    Maturing 2023--7 3/4% to 8 3/8%..................     560,000      560,000
                                                      -----------  -----------
                                                      $ 4,851,400  $ 5,311,400
  Sinking fund debentures, due 1999 through 2011--2
   3/4% to 7 5/8%....................................     100,298      105,164
  Pollution control obligations, due 2007 through
   2014--3.70% to 5 7/8%.............................     142,200      142,200
  Other long-term debt...............................   1,193,818    1,100,833
  Current maturities of long-term debt included in
   current liabilities...............................    (503,909)    (540,505)
  Unamortized net debt discount and premium..........     (46,459)     (49,558)
                                                      -----------  -----------
                                                      $ 5,737,348  $ 6,069,534
                                                      -----------  -----------
                                                      $11,687,416  $13,099,157
                                                      ===========  ===========
</TABLE>

   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.

                                       25
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

             STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)

<TABLE>
<CAPTION>
                                               1997        1996       1995
                                            ----------  ---------- ----------
                                                 (THOUSANDS OF DOLLARS)
<S>                                         <C>         <C>        <C>
Balance at Beginning of Year............... $1,177,997  $  856,893 $  560,971
Add--Net income (loss).....................   (852,850)    666,100    639,511
                                            ----------  ---------- ----------
                                            $  325,147  $1,522,993 $1,200,482
                                            ----------  ---------- ----------
Deduct--
    Cash dividends declared on common
     stock................................. $  346,225  $  344,892 $  343,619
    Other capital stock transactions--net..        106         104        (30)
                                            ----------  ---------- ----------
                                            $  346,331  $  344,996 $  343,589
                                            ----------  ---------- ----------
Balance at End of Year (Includes $331 mil-
 lion of appropriated retained earnings at
 December 31, 1997)........................ $  (21,184) $1,177,997 $  856,893
                                            ==========  ========== ==========
</TABLE>





   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.

                                       26
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                     STATEMENTS OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
                                            1997         1996         1995
                                         -----------  -----------  -----------
                                               (THOUSANDS OF DOLLARS)
<S>                                      <C>          <C>          <C>
Cash Flow From Operating Activities:
 Net income (loss)...................... $  (852,850) $   666,100  $   639,511
 Adjustments to reconcile net income
  (loss) to net cash provided by oper-
  ating activities:
   Depreciation and amortization........   1,036,271      990,779      949,413
   Deferred income taxes and investment
    tax credits--net....................    (345,042)     129,697      156,817
   Extraordinary loss related to early
    redemption of long-term debt........         --           --        33,158
   Extraordinary loss related to write-
    off of certain net regulatory as-
    sets................................     810,335          --           --
   Cumulative effect of a change in ac-
    counting principle..................    (196,700)         --           --
   Loss on nuclear plant closure........     885,611          --           --
   Provisions for revenue refunds.......      45,470          --           --
   Equity component of allowance for
    funds used during construction......     (23,770)     (20,776)     (13,129)
   Recovery of regulatory assets........      15,272       15,272       15,272
   Provisions/(payments) for liability
    for separation costs--net...........      15,986      (29,888)      60,713
   Net effect on cash flows of changes
    in:
     Receivables........................      24,083       71,497     (178,665)
     Coal and fuel oil..................      19,698      (11,186)     (20,304)
     Materials and supplies.............      41,659        9,053       51,073
     Accounts payable excluding nuclear
      fuel lease principal payments and
      separation costs--net.............     259,810      104,366      460,705
     Accrued interest and taxes.........     (17,903)     (47,291)      (2,684)
     Other changes in certain current
      assets and liabilities............      39,005       13,850       26,637
   Other--net...........................     170,832       69,447      153,916
                                         -----------  -----------  -----------
                                         $ 1,927,767  $ 1,960,920  $ 2,332,433
                                         -----------  -----------  -----------
Cash Flow From Investing Activities:
 Construction expenditures.............. $(1,043,311) $  (982,274) $  (927,327)
 Nuclear fuel expenditures..............    (185,373)    (281,833)    (289,118)
 Sale of generating plant...............      60,791          --           --
 Equity component of allowance for
  funds used during construction........      23,770       20,776       13,129
 Contributions to nuclear
  decommissioning funds.................    (114,825)    (119,281)    (132,653)
 Other investments and special depos-
  its...................................     (13,246)      (2,116)      (1,601)
                                         -----------  -----------  -----------
                                         $(1,272,194) $(1,364,728) $(1,337,570)
                                         -----------  -----------  -----------
Cash Flow From Financing Activities:
 Issuance of securities--
   Long-term debt....................... $   362,663  $   251,902  $    62,000
   ComEd-obligated mandatorily redeem-
    able preferred securities of subsid-
    iary trusts holding solely ComEd's
    subordinated debt securities........     150,000          --       200,000
   Capital stock........................      15,778       17,754       25,507
 Retirement and redemption of securi-
  ties--
   Long-term debt.......................    (736,740)    (433,084)  (1,137,272)
   Capital stock........................     (44,111)     (44,513)     (17,935)
 Deposits and securities held for re-
  tirement and redemption of securi-
  ties..................................         --           --           106
 Premium paid on early redemption of
  long-term debt........................      (9,500)         --       (25,823)
 Cash dividends paid on common stock....    (345,936)    (344,553)    (343,375)
 Proceeds from sale/leaseback of nu-
  clear fuel............................     149,955      316,617      193,215
 Nuclear fuel lease principal payments..    (166,411)    (211,741)    (237,845)
 Increase (Decrease) in short-term
  borrowings............................      29,400     (139,400)     261,000
                                         -----------  -----------  -----------
                                         $  (594,902) $  (587,018) $(1,020,422)
                                         -----------  -----------  -----------
Increase (Decrease) in Cash and Tempo-
 rary Cash Investments.................. $    60,671  $     9,174  $   (25,559)
Cash and Temporary Cash Investments at
 Beginning of Year......................      60,550       51,376       76,935
                                         -----------  -----------  -----------
Cash and Temporary Cash Investments at
 End of Year............................ $   121,221  $    60,550  $    51,376
                                         ===========  ===========  ===========
</TABLE>

   The accompanying Notes to Financial Statements are an integral part of the
                               above statements.

                                       27
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                         NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, an electric utility, is the
principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities. Unicom Resources is also an unregulated subsidiary of
Unicom and is engaged in the development of business ventures.

  The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, the Trusts and Unicom's unregulated subsidiaries. All
significant intercompany transactions have been eliminated. ComEd's
investments in other subsidiary companies, which are not material in relation
to ComEd's financial position or results of operations, are accounted for in
accordance with the equity method of accounting.

  Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

  Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd's accounting policies and
the accompanying consolidated financial statements conform to GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or returned to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.

  ComEd's investment in generation-related net utility plant, including
construction work in progress and nuclear fuel, and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $12.4 billion and $13.1 billion
at December 31, 1997 and 1996, respectively.


                                      28
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  Regulatory Assets and Liabilities. Regulatory assets are incurred costs
which have been deferred and are amortized for ratemaking and accounting
purposes. Regulatory liabilities represent amounts to be settled with
customers through future rates. Regulatory assets and liabilities reflected on
the Consolidated Balance Sheets at December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31
                                                           ---------------------
                                                              1997       1996
                                                           ---------- ----------
                                                               (THOUSANDS OF
                                                                 DOLLARS)
<S>                                                        <C>        <C>
Regulatory assets:
  Deferred income taxes (1)............................... $  785,354 $1,649,037
  Deferred carrying charges (2)...........................        --     396,879
  Nuclear decommissioning costs--Dresden Unit 1 (3).......    268,369    174,621
  Nuclear decommissioning costs--Zion Units 1 and 2 (4)...    579,777        --
  Unamortized loss on reacquired debt (5).................     51,735    148,380
  Other...................................................        --      65,890
                                                           ---------- ----------
                                                           $1,685,235 $2,434,807
                                                           ========== ==========
Regulatory liabilities:
  Deferred income taxes (1)............................... $  698,750 $  668,301
                                                           ========== ==========
</TABLE>
--------
(1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes.
(2) Recorded as authorized in the Remand Order.
(3) Amortized over the remaining current NRC license life of Dresden Station.
    See "Depreciation and Decommissioning" below for additional information.
(4) Amortized over the remaining current NRC license life of Zion Station. See
    "Depreciation and Decommissioning" below for additional information.
(5) Amortized over the remaining lives of the long-term debt issued to finance
    the reacquisition. See "Loss on Reacquired Debt" below for additional
    information.

  The 1997 regulatory assets and liabilities' balances reflect the write-off
of generation-related regulatory assets and liabilities and the recording of
nuclear decommissioning costs for Zion Station. See "Depreciation and
Decommissioning" below and Note 2 for additional information.

  Fuel Adjustment Clause. The FAC adopted by the ICC provided for the recovery
of changes in fossil and nuclear fuel costs and the energy portion of
purchased power costs as compared to the fuel and purchased energy costs
included in ComEd's base rates. As authorized by the ICC, ComEd had recorded
under or overrecoveries of allowable fuel and energy costs which, under the
clause, were recoverable or refundable in subsequent months. Pursuant to an
option contained in the 1997 Act, ComEd filed a tariff on December 16, 1997 to
eliminate its FAC as of January 1, 1997. See Note 2 for additional
information.

  Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on
the quantity of heat produced using the unit of production method. As
authorized by the ICC, provisions for spent nuclear fuel disposal costs have
been recorded at a level required to recover the fee payable on the current
nuclear-generated and sold electricity and the current interest accrual on the
one-time fee payable to the DOE for nuclear generation prior to April 7, 1983.
The one-time fee and interest thereon have been recovered and the current fee
and current interest on the one-time fee are presently being recovered through
base rates. See Note 14 for additional information concerning the disposal of
spent nuclear fuel, the one-time fee and the interest accrual on the one-time
fee. Nuclear fuel expenses, including leased fuel costs and provisions for
spent nuclear fuel disposal costs, were $298 million, $354 million and $391
million for the years 1997, 1996 and 1995, respectively.

   The balance of nuclear fuel, at amortized cost, on the Consolidated Balance
Sheets includes amounts to be recovered for assessments by the DOE to fund a
portion of the cost for the decontamination and decommissioning of uranium
enrichment facilities owned and previously

                                      29
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
operated by the DOE. As of December 31, 1997 and 1996, an asset related to the
assessments of $156 million and $168 million, respectively, was recorded. As
of December 31, 1997 and 1996, a corresponding liability of $144 million and
$157 million, respectively, was recorded, of which $16 million was included in
other current liabilities on the Consolidated Balance Sheets.

  Coal Reserves. At December 31, 1997 and 1996, ComEd had coal reserves of
$282 million and $364 million, respectively. In prior years, ComEd's
commitments for the purchase of coal exceeded its requirements. Rather than
take all the coal it was required to take, ComEd agreed to purchase the coal
in place in the form of coal reserves. ComEd expects to recover from its
customers the costs of the coal reserves, as coal is used for the generation
of electricity, through base rates. Such fuel costs expected to be recovered
within one year, amounting to $87 million and $73 million at December 31, 1997
and 1996, respectively, have been included in current assets as prepayments
and other on the Consolidated Balance Sheets. ComEd expects to fully recover
the costs of the coal reserves before the year 2001. See Note 23 for
additional information concerning ComEd's coal commitments.

  Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately 8 million as of December
31, 1997. It includes the city of Chicago, an area of about 225 square miles
with an estimated population of approximately 3 million from which ComEd
derived approximately one-third of its ultimate consumer revenues in 1997.
ComEd had 3.4 million electric customers at December 31, 1997.

  In 1997, ComEd changed its accounting method for revenue recognition to
record ComEd's revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. See Note 3 for information regarding the
cumulative effect of a change in accounting principle on prior years and the
effect on the current year. See Note 2 for information regarding the expected
effects of the August 1, 1998 rate reduction and certain pricing experiments.

  Depreciation and Decommissioning. ComEd's depreciation is provided on the
straight-line basis by amortizing the cost of depreciable plant and equipment
over estimated composite service lives. Non-nuclear plant and equipment is
depreciated at annual rates developed for each class of plant based on their
composite service lives. Provisions for depreciation were at average annual
rates of 3.36%, 3.25% and 3.14% for the years 1997, 1996 and 1995,
respectively, of average depreciable utility plant and equipment, including
the effects of additional depreciation on ComEd's nuclear generating units.
The annual rate for nuclear plant and equipment, excluding separately
collected decommissioning costs and additional depreciation, is 2.88%. The
additional depreciation on ComEd's nuclear generating units includes
depreciation recorded for the year 1997 related to its steam generators at
Byron Unit 1 and Braidwood Unit 1 of $59 million, which are expected to be
replaced prior to year-end 1998, and the 1996 additional depreciation
initiative of $30 million. See Note 4 for additional information on the 1996
additional depreciation initiative.

  Nuclear plant decommissioning costs are accrued over the current NRC license
lives of the related nuclear generating units. The accrual is based on an
annual levelized cost of the unrecovered portion of estimated decommissioning
costs, which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust funds. See
"Decommissioning" under "Management's Discussion and Analysis of Financial
Condition and

                                      30
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
Results of Operations," subcaption "Results of Operations," for a discussion
of questions raised by the staff of the SEC and a FASB review regarding the
electric utility industry's method of accounting for decommissioning costs.
Dismantling is expected to occur relatively soon after the end of the current
NRC license life of each related generating station. The accrual for
decommissioning is based on the prompt removal method authorized by NRC
guidelines. ComEd's 10 operating units have remaining current NRC license
lives ranging from 8 to 30 years. ComEd's Zion Station and its first nuclear
unit, Dresden Unit 1, are retired and are expected to be dismantled at the end
of the current NRC license life of the last unit at each of those stations,
which is consistent with the regulatory treatment for the related
decommissioning costs.

  Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates that it will expend approximately $12.9 billion, including a
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by the external
decommissioning trusts, which ComEd established in compliance with Illinois
law and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption
of or changes to NRC regulations as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste and inflation.

  Pursuant to the Rate Order, since 1995, ComEd has collected decommissioning
costs from its ratepayers in conjunction with a rider, which allows annual
adjustments to decommissioning cost collections outside the context of a
traditional rate proceeding. Recovery of decommissioning costs through the
rider will continue under the 1997 Act. The current estimated decommissioning
costs include a contingency allowance. Contingency allowances used in
decommissioning cost estimates provide for currently unspecifiable costs that
are likely to occur after decommissioning begins and generally range from 20%
to 25% of the currently specifiable costs. Under its most recent annual rider,
filed with the ICC on February 28, 1997, ComEd has proposed to decrease its
estimated annual decommissioning cost accrual from $108.8 million to $107.5
million. The reduction primarily reflects stronger than expected after-tax
returns on the external trust funds in 1996 and lower than expected escalation
in low-level waste disposal costs, partially offset by the higher current-year
cost estimates, which include a contingency allowance.

  The proposed annual decommissioning cost accrual of $107.5 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.8 billion in current-year (1998) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $107.5 million provided over the current NRC license
lives of the nuclear plants, coupled with the expected fund earnings and
amounts previously recovered in rates, is expected to aggregate approximately
$12.9 billion.

  For the 10 operating nuclear units, decommissioning costs are recorded as
portions of depreciation expense and accumulated provision for depreciation on
the Statements of Consolidated Operations and the Consolidated Balance Sheets,
respectively. As of December 31, 1997, the total decommissioning costs
included in the accumulated provision for depreciation were $1,570 million.
For ComEd's retired nuclear unit, Dresden Unit 1, the total estimated
liability at December 31, 1997 in current-year (1998) dollars of $365 million
was recorded under nuclear decommissioning costs for

                                      31
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
retired plants and the unrecovered portion of the liability of $268 million
was recorded as a regulatory asset on the Consolidated Balance Sheets. The
increase from December 31, 1996 to December 31, 1997 in the total estimated
liability related to Dresden Unit 1, and the unrecovered portion of that
liability, is due to higher current-year cost estimates, which include a
contingency allowance.

  For ComEd's retired Zion nuclear station, the total estimated liability at
December 31, 1997 in current-year (1998) dollars of $936 million was recorded
under nuclear decommissioning costs for retired plants and the unrecovered
portion of the liability of $580 million was recorded as a regulatory asset on
the Consolidated Balance Sheets.

  Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts; and, consequently, such collections do not add
to the cash flows available for general corporate purposes. The ICC has
approved ComEd's funding plan, which provides for annual contributions of
current accruals and ratable contributions of past accruals over the remaining
current NRC license lives of the nuclear plants. At December 31, 1997, the
past accruals that are required to be contributed to the external trusts
aggregate $167 million. The fair value of funds accumulated in the external
trusts at December 31, 1997 was $1,856 million, which includes pre-tax
unrealized appreciation of $429 million. The earnings on the external trusts
accumulate in the fund balance and accumulated provision for depreciation.

  Income Taxes. Deferred income taxes are provided for income and expense
items recognized for financial accounting purposes in periods that differ from
those for income tax purposes. Income taxes deferred in prior years are
charged or credited to income as the book/tax timing differences reverse.
Prior years' deferred investment tax credits are amortized through credits to
income generally over the lives of the related property. Income tax credits
resulting from interest charges applicable to nonoperating activities,
principally construction, are classified as other income.

  AFUDC. In accordance with the uniform systems of accounts prescribed by
regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually,
which represents the estimated cost of funds used to finance its construction
program. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 9.39%, 9.02% and 9.52% for the years
1997, 1996 and 1995, respectively. AFUDC does not contribute to the current
cash flow of Unicom or ComEd. ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, ComEd will not record AFUDC, but will capitalize
interest costs on its generation-related construction work in progress and
nuclear fuel in process beginning in 1998.

  Interest. Total interest costs incurred on debt, leases and other
obligations were $598 million, $626 million and $696 million for the years
1997, 1996 and 1995, respectively.

  Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd are being amortized over the lives of the respective
issues.

  Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's reacquisition in connection with the refinancing of first
mortgage bonds, sinking fund debentures and pollution control obligations
prior to their scheduled maturity dates is deferred and amortized over the
lives of the long-term debt issued to finance the reacquisition for non-
generation related financings. See "Regulatory Assets and Liabilities" above
and Note 2 for additional information.


                                      32
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
  Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for
additional information.

  Earnings per Share. Unicom adopted SFAS No. 128, Earnings per Share, which
established standards for computing and presenting EPS. Unicom has presented
basic EPS on the Statements of Consolidated Operations for the years 1997,
1996 and 1995. Basic EPS and diluted EPS for the years presented are the same.
The diluted average number of common shares outstanding was 216,330,000,
215,686,000 and 214,828,000 for the years 1997, 1996 and 1995, respectively.

  Energy Risk Management Contracts. In the normal course of business ComEd
utilizes contracts for the forward sale and purchase of energy to effectively
manage the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are recognized immediately for contracts with terms of less than one year and
are amortized over the length of the term of contracts covering more than one
year.

  Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.

  Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be
cash equivalents. Supplemental cash flow information for the years 1997, 1996
and 1995 was as follows:

<TABLE>
<CAPTION>
                                                      1997     1996     1995
                                                    -------- -------- --------
                                                      (THOUSANDS OF DOLLARS)
<S>                                                 <C>      <C>      <C>
Supplemental Cash Flow Information:
 Cash paid during the year for:
   Interest (net of amount capitalized)............ $512,050 $538,351 $604,932
   Income taxes (net of refunds)................... $264,802 $234,743 $367,708
Supplemental Schedule of Non-Cash Investing and
 Financing Activities:
 Capital lease obligations incurred by subsidiary
  companies........................................ $158,412 $320,975 $198,577
</TABLE>

(2) ACCOUNTING EFFECTS RELATED TO THE 1997 ACT

  On December 16, 1997, the Governor of Illinois signed into law the 1997 Act
which, as it applies to ComEd, provides for, among other things, a 15%
residential base rate reduction commencing August 1, 1998, an additional 5%
residential base rate reduction commencing May 1, 2002, and customer access to
other electric suppliers in a phased-in process. Access for commercial and
industrial customers will occur over a period from October 1999 to December
2000, and access for residential customers will occur after May 1, 2002. The
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce its operating revenues by approximately $30 million and $60
million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.

                                      33
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the legislation. The CTC, which will be applied on a cents
per kilowatthour basis, considers the revenue which would have been collected
from a customer under tariffed rates, reduced by 1) the revenue the utility
will receive for providing delivery services to the customer, 2) the market
price for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.

  Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC authority. Under the earnings
provision of the legislation, if the earned return on common equity of a
utility during this period exceeds an established threshold, a portion of the
excess earnings must be refunded to customers. A utility may request a rate
increase during the rate freeze period when necessary to ensure the utility's
financial viability, but not before January 1, 2000.

  Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.

  The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.

  As a result of the 1997 Act, prices for the supply of electric generation
are expected to transition from cost-based, regulated rates to rates
determined by competitive market forces. The CTC allows ComEd to recover a
portion of any of its costs which might otherwise be unrecoverable under
market-based rates. Nonetheless, ComEd will need to take steps to address the
portion of such costs which are not recoverable through the CTC. Such steps
include cost control efforts and developing new sources of revenue.

  Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd evaluated the regulatory assets and liabilities related to the
generation portion of its business and determined that it is not probable that
such costs will be recovered through the cash flows from the regulated portion
of its business. Accordingly, the generation-related regulatory assets and
liabilities were written off in the fourth quarter of 1997, resulting in a
charge of $810 million (after-tax) or $3.75 per common share. These costs
relate principally to previously incurred costs originally expected to be
collected through future

                                      34
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
revenues, including income tax benefits previously flowed through to
customers, deferred carrying charges on the Byron Unit 2 and Braidwood Units 1
and 2 nuclear generating plants, generation-related unamortized loss on
reacquired debt and other miscellaneous generation-related costs. The
regulatory asset for the unrecovered nuclear decommissioning costs of
currently retired nuclear plants was not written off, as the 1997 Act provides
for the ongoing recovery of decommissioning costs through regulated rates. See
"Regulatory Assets and Liabilities" and "Depreciation and Decommissioning" in
Note 1 of Notes to Financial Statements.

  Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided for the recovery of changes in fossil and
nuclear fuel costs and the energy portion of purchased power costs as compared
to the fuel and purchased energy costs included in ComEd's base rates.
Elimination of the FAC requires ComEd to refund to customers any net FAC
charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax) or $0.12 per common share. These costs,
as well as deferred underrecovered energy costs of $19 million (after-tax) or
$0.08 per common share which ComEd would have been entitled to recover if the
FAC had remained in effect, were recorded as a reduction to operating results
in 1997.

  Additionally, elimination of the FAC and a transition to market-based
pricing for generation-related costs required ComEd to write down its
investment in uranium-related properties. Current projections of the market
price for uranium indicate that the expected incremental costs of mining and
milling uranium at such properties will exceed the expected market price for
uranium. Such costs are not expected to be recoverable in a competitive
market. A write down of ComEd's investment in uranium-related properties to
realizable value resulted in a charge of $60 million (after-tax) or $0.28 per
common share in December 1997.

  SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was adopted on January 1, 1996,
established accounting standards for the impairment of long-lived assets,
i.e., determining whether the costs of such assets are recoverable through
future revenues. SFAS No. 121 also requires that regulatory assets, which are
no longer probable of recovery through future revenue, be charged to
operations. ComEd evaluated whether the recoverability of the costs of its
generating stations has been impaired as defined in SFAS No. 121. This
evaluation was conducted to determine whether future revenues expected to be
recovered from electric supply services will be sufficient to cover the costs
of its generating assets. Notwithstanding the retirement and write-off of Zion
Station, as discussed in Note 5, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not necessary at this time. However, ComEd is
engaged in an ongoing examination of its assets and operations. If ComEd
retires or closes one or more additional generating plants prior to expected
retirement dates, further write-offs will be required.

(3) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

  ComEd changed its accounting method for revenue recognition to record
revenues associated with service which has been provided to customers but has
not yet been billed at the end of each accounting period, retroactive to
January 1, 1997. This change in accounting method increased 1997 operating
results by $170 million (after-tax) or $0.79 per common share, consisting of a
one-time cumulative effect of the change for years prior to 1997 of $197
million (after-tax) or $0.91 per common share, less the impact of the change
on 1997 results of $27 million (after-tax) or $0.12 per common

                                      35
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
share. The following pro forma information reflects the financial results for
1997, 1996 and 1995 as if the new accounting method had been used in such
periods (unaudited):
<TABLE>
<CAPTION>
                                                     1997        1996     1995
                                                  -----------  -------- --------
                                                   (THOUSANDS EXCEPT PER SHARE
                                                              DATA)
<S>                                               <C>          <C>      <C>
Net Income (Loss) Before Extraordinary Items and
 Cumulative Effect of Change in Accounting Prin-
 ciple..........................................  $  (239,215) $698,229 $682,688
Earnings (Loss) Per Common Share Before Extraor-
 dinary Items and Cumulative Effect of Change in
 Accounting Principle...........................  $     (1.10) $   3.24 $   3.18
Net Income (Loss)...............................  $(1,049,550) $698,229 $662,666
Earnings (Loss) Per Common Share................  $     (4.85) $   3.24 $   3.09
</TABLE>

(4) RATE MATTERS

  In January 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 1994 rate increase request. The Rate Order provided, among
other things, for an increase in ComEd's total revenues of approximately $302
million (excluding add-on revenue taxes) on an annual basis. The rates
provided in the Rate Order became effective on January 14, 1995; however, they
are being collected subject to refund as a result of subsequent judicial
action. The Rate Order was appealed by intervenors and ComEd to the Illinois
Appellate Court, which issued a decision on May 30, 1997 affirming the Rate
Order in all respects with the exception of two issues, which it remanded to
the ICC for the purpose of providing further analysis. Those issues relate to:
(i) the manner in which certain costs are recovered and which customers should
pay those costs, and (ii) the proper rate of return on common equity for
ComEd. ComEd believes that the ICC can satisfy the Appellate Court's remand
directions on the basis of the existing record from the ICC proceedings which
led to the Rate Order. The Appellate Court's decision was not appealed and the
matter was returned to the ICC, where a decision is expected early in the
second quarter of 1998.

  With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC had determined in the Rate
Order that ComEd's cost of common equity was 12.28%. Intervenors had submitted
testimony recommending a return on common equity of 11.50%. The Appellate
Court decision requires the ICC to clarify the basis for certain of its
findings relating to its rejection of the intervenors' recommendation and to
analyze further how it arrived at its conclusions. The Appellate Court stated
that after reanalyzing these bases the ICC can determine whether or not the
cost of common equity determination it adopted should still be followed. Each
tenth of one percent change in the rate of return on common equity has
approximately an $8 million effect on the level of annual revenues. The
Appellate Court's decision does not have any immediate effect on ComEd's rates
or require any refunds. In connection with the initiation of the appeal, ComEd
committed to make refunds "in the event that a final, non-appealable order is
entered reversing the ICC's Rate Order." Revenues of approximately $195
million would be subject to refund if the ICC were to adopt the lower rate of
return on common equity recommended by intervenors. An ICC Hearing Examiner
issued a proposed order in January 1998, which if adopted by the ICC, would
uphold the Rate Order and the associated $302 million revenue increase on an
annual basis.

  ComEd's costs increased by $30 million in 1996 (before income tax effects)
for an increase in depreciation charges on its nuclear generating units
related to its additional depreciation initiative in 1996. See Note 1 under
"Depreciation and Decommissioning" for information concerning additional
depreciation charges related to ComEd's steam generators at Byron Unit 1 and
Braidwood Unit 1.

  See Note 2 for information regarding the 1997 Act.

                                      36
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

(5) CLOSURE AND SALE OF PLANTS

  On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42
per common share. The decision to close Zion Station was a result of an
ongoing analysis, which ComEd performed regarding the economic value of its
generating assets in light of the expected changes in the manner in which
electric energy is marketed and sold. The passage of the 1997 Act provided a
clearer basis for evaluating the costs and benefits of alternative courses of
action. In reaching the decision to cease nuclear generation operations at
Zion Station, the Boards also considered the significant uncertainty
associated with continued operation of the station due to the degradation of
the steam generators, and the expected operating costs associated with
continued station operation.

  ComEd's fourth quarter 1997 financial results reflected a charge of $406
million (after-tax) representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In addition,
as required by GAAP, a liability for future closing costs associated with the
retirement of Zion Station, excluding severance costs, was recorded resulting
in a charge of $117 million (after-tax) in the fourth quarter of 1997.

  In April 1996, ComEd announced that it had finalized agreements to sell 2 of
its coal-fired generating stations, representing 1,600 megawatts of generating
capacity. Under the agreements, State Line and Kincaid stations are expected
to be sold for a total of $250 million, which approximates the book value of
the stations. The net proceeds are expected to be approximately $200 million
(after-tax), which will be used to retire or redeem existing debt. Under the
terms of the sales, ComEd will enter into exclusive 15-year purchased power
agreements for the output of the plants. On March 31, 1997, the ICC issued an
order approving the agreements. A subsequent appeal has been dropped by the
intervening parties. The sale of State Line Station for its approximate book
value was finalized in December 1997. The net proceeds of the sale, after
income tax effects and closing costs, were approximately $56 million. The
Kincaid Station sale is expected to be finalized during the first quarter of
1998.

(6) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK

  At December 31, 1997, Unicom's authorized shares consisted of 400,000,000
shares of common stock. The authorized shares of ComEd preferred and
preference stocks at December 31, 1997 were: preference stock--22,368,560
shares; $1.425 convertible preferred stock--65,912 shares; and prior preferred
stock--850,000 shares. The preference and prior preferred stocks are issuable
in series and may be issued with or without mandatory redemption requirements.
Holders of outstanding Unicom shares are entitled to one vote for each share
held on each matter submitted to a vote of such shareholders; and holders of
outstanding ComEd shares are entitled to one vote for each share held on each
matter submitted to a vote of such shareholders. All such shares have the
right to cumulate votes in elections for the directors of the corporation
which issued the shares.

  Pursuant to a plan adopted by the Unicom Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The Rights are tradable only with Unicom's common stock
until they become exercisable. The Rights become exercisable upon the earlier
of ten days following a

                                      37
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
public announcement that a person (an "Acquiring Person") has acquired 15% or
more of Unicom's outstanding common stock or ten business days (or such later
date as may be determined by action of the Board of Directors) following the
commencement of a tender or exchange offer which, if consummated, would result
in a person or group becoming an Acquiring Person. The Rights are subject to
redemption by Unicom at a price of $.01 per Right, subject to certain
limitations, and will expire on February 2, 2008. If a person or group becomes
an Acquiring Person, each holder of a Right will thereafter have the right to
receive, upon exercise, Unicom common stock at a 50% discount from the then
current market price. If Unicom is acquired in a merger or other business
combination transaction in which Unicom is not the survivor, or 50% or more of
Unicom's assets or earning power is sold or transferred, each holder of a
Right shall then have the right to receive, upon exercise, common stock of the
acquiring company at a 50% discount from the then current market price of such
common stock. Rights held by an Acquiring Person become void upon the
occurrence of such events.

(7) COMMON EQUITY

  At December 31, 1997, shares of Unicom common stock were reserved for the
following purposes:

<TABLE>
      <S>                                                              <C>
      Long-Term Incentive Plan........................................ 3,177,566
      Employee Stock Purchase Plan....................................   507,567
      Exchange for ComEd common stock not held by Unicom..............    97,953
      1996 Directors' Fee Plan........................................   180,713
                                                                       ---------
                                                                       3,963,799
                                                                       =========
</TABLE>

  Common stock for the years ended 1997, 1996 and 1995 was issued as follows:

<TABLE>
<CAPTION>
                                                       1997     1996     1995
                                                      -------  -------  -------
<S>                                                   <C>      <C>      <C>
 Shares of Common Stock Issued:
   Long-Term Incentive Plan.......................... 208,104  132,579  481,751
   Employee Stock Purchase Plan...................... 196,003  196,513  217,080
   Employee Savings and Investment Plan.............. 274,203  339,100  217,100
   Exchange for ComEd common stock not held by
    Unicom...........................................  12,370   25,323      --
   1996 Directors' Fee Plan..........................  14,175    5,112      --
                                                      -------  -------  -------
                                                      704,855  698,627  915,931
                                                      =======  =======  =======
<CAPTION>
                                                      (THOUSANDS OF DOLLARS)
<S>                                                   <C>      <C>      <C>
 Amount of Common Stock Issued:
   Total issued...................................... $15,768  $17,733  $25,412
   Held by trustee for Unicom Stock Bonus Deferral
    Plan.............................................  (2,476)  (4,300)     --
   Other.............................................      10       38       95
                                                      -------  -------  -------
                                                      $13,302  $13,471  $25,507
                                                      =======  =======  =======
</TABLE>

  At December 31, 1997 and 1996, 76,868 and 78,045 ComEd common stock purchase
warrants, respectively, were outstanding. The warrants entitle the holders to
convert such warrants into common stock of ComEd at a conversion rate of one
share of common stock for three warrants.

  Unicom's retained earnings account had a deficit balance of $21.2 million at
December 31, 1997. As of December 31, 1997, $331 million of retained earnings
has been appropriated for future dividend payments.

                                      38
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED


(8) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN

  Unicom has a nonqualified stock option awards program under its Long-Term
Incentive Plan. The stock option awards program was adopted by Unicom in July
1996 to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. The stock
options granted will expire ten years from their grant date. One-third of the
shares subject to the options vest on each of the first three anniversaries of
the option grant date. In addition, the stock options will become fully vested
immediately if the holder dies, retires, is terminated by the Company other
than for cause or qualifies for long-term disability and will also vest in
full upon a change in control.

  Stock options transactions for the years 1997 and 1996 are summarized as
follows:

<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                                        AVERAGE
                                                              OPTIONS    PRICE
                                                             ---------  --------
<S>                                                          <C>        <C>
Outstanding at the beginning of 1996........................       --   $   --
Granted during the year..................................... 1,205,500   25.500
Expired/cancelled during the year...........................   (17,500)  25.500
                                                             ---------
Outstanding as of December 31, 1996......................... 1,188,000   25.500
Granted during the year..................................... 1,339,350   22.313
Exercised during the year...................................   (23,423)  25.500
Expired/cancelled during the year...........................  (213,549)  23.649
                                                             ---------
Outstanding as of December 31, 1997......................... 2,290,378   23.809
                                                             =========
</TABLE>

  Of the stock options outstanding at December 31, 1997, 426,174 have vested
at a weighted average price of $25.455.

  The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                                                STOCK OPTION
                                                                 GRANT DATE
                                                               ----------------
                                                                1997     1996
                                                               -------  -------
<S>                                                            <C>      <C>
  Expected option life........................................ 7 years  7 years
  Dividend yield..............................................    7.20%    6.30%
  Expected volatility.........................................   22.29%   20.98%
  Risk-free interest rate.....................................    6.25%    6.64%
</TABLE>

  The estimated fair value for each stock option granted in 1997 and 1996 was
$2.79 and $3.74, respectively.

  The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
196,003, 196,513 and 217,080 shares of common stock in 1997, 1996 and 1995,
respectively, under the ESPP at a weighted average annual purchase price of
$19.15, $23.52 and $25.34, respectively.

  Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25 and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPP in accordance
with SFAS No. 123 using the fair value based method of accounting, the effect
on operating results and EPS would have been immaterial.

                                      39
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

(9) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS

  No shares of ComEd preferred or preference stocks without mandatory
redemption requirements were issued or redeemed during 1997, 1996 and 1995.
The series of ComEd preference stock without mandatory redemption requirements
outstanding at December 31, 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                                        INVOLUNTARY
                    SHARES           AGGREGATE         REDEMPTION       LIQUIDATION
      SERIES      OUTSTANDING       STATED VALUE        PRICE(1)         PRICE(1)
      ------      -----------       ------------       ----------       -----------
                                 (THOUSANDS
                                 OF DOLLARS)
      <S>         <C>               <C>                <C>              <C>
      $1.90        4,249,549          $106,239          $ 25.25           $25.00
      $2.00        2,000,000            51,560          $ 26.04           $25.00
      $1.96        2,000,000            52,440          $ 27.11           $25.00
      $7.24          750,000            74,340          $101.00           $99.12
      $8.40          750,000            74,175          $101.00           $98.90
      $8.38          750,000            73,566          $100.16           $98.09
      $2.425       3,000,000            72,637          $ 25.00           $25.00
                  ----------          --------
                  13,499,549          $504,957
                  ==========          ========
</TABLE>
     --------
     (1) Per share plus accrued and unpaid dividends, if any.

  The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd at the rate of 1.02 shares of common stock for each share of
convertible preferred stock, subject to future adjustment. The convertible
preferred stock may be redeemed by ComEd at $42 per share, plus accrued and
unpaid dividends, if any. The involuntary liquidation price of the $1.425
convertible preferred stock is $31.80 per share, plus accrued and unpaid
dividends, if any.

(10) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS

  During 1997, 1996 and 1995, no shares of ComEd preference stock subject to
mandatory redemption requirements were issued. The series of ComEd preference
stock subject to mandatory redemption requirements outstanding at December 31,
1997 are summarized as follows:

<TABLE>
<CAPTION>
                  SHARES     AGGREGATE
    SERIES      OUTSTANDING STATED VALUE          OPTIONAL REDEMPTION PRICE(1)
--------------  ----------- ------------ -----------------------------------------------
                             (THOUSANDS
                            OF DOLLARS)
<S>             <C>         <C>          <C>
$8.20              178,560    $ 17,856   $101
$8.40 Series B     300,000      29,798   $101
$8.85              225,000      22,500   $103 through July 31, 1998; and $101 thereafter
$9.25              525,000      52,500   $103 through July 31, 1999; and $101 thereafter
$9.00              130,000      12,887   Non-callable
$6.875             700,000      69,475   Non-callable
                 ---------    --------
                 2,058,560    $205,016
                 =========    ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.

                                      40
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  The annual sinking fund requirements and sinking fund and involuntary
liquidation prices per share of the outstanding series of ComEd preference
stock subject to mandatory redemption requirements are summarized as follows:

<TABLE>
<CAPTION>
                                                SINKING
                        ANNUAL SINKING FUND       FUND           INVOLUNTARY
          SERIES            REQUIREMENT         PRICE(1)     LIQUIDATION PRICE(1)
      --------------    -------------------     -------      -------------------
      <S>               <C>                     <C>          <C>
      $8.20               35,715 shares          $100             $100.00
      $8.40 Series B      30,000 shares(2)       $100             $ 99.326
      $8.85               37,500 shares          $100             $100.00
      $9.25               75,000 shares          $100             $100.00
      $9.00              130,000 shares(2)       $100             $ 99.125
      $6.875                    (3)              $100             $ 99.25
</TABLE>
     --------
     (1) Per share plus accrued and unpaid dividends, if any.
     (2) ComEd has a non-cumulative option to increase the annual
         sinking fund payment on each sinking fund redemption date
         to retire an additional number of shares, not in excess of
         the sinking fund requirement, at the applicable redemption
         price.
     (3) All shares are required to be redeemed on May 1, 2000.

  Annual remaining sinking fund requirements through 2002 on ComEd preference
stock outstanding at December 31, 1997 will aggregate $31 million in 1998, $18
million in 1999, $88 million in 2000 and $18 million in each of 2001 and 2002.
During each of 1997 and 1996 438,215 shares and during 1995 178,215 shares of
ComEd preference stock subject to mandatory redemption requirements were
reacquired to meet sinking fund requirements.

  Sinking fund requirements due within one year are included in current
liabilities.

(11) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
   TRUSTS HOLDING SOLELY COMED'S SUBORDINATED DEBT SECURITIES

  In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of
ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable
preferred securities. The sole asset of ComEd Financing I is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned
subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing
II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. However, ComEd's obligations are subordinate and junior in right
of payment to certain other indebtedness of ComEd. ComEd has the right to
defer payments of interest on the subordinated deferrable interest notes by
extending the interest payment period, at any time, for up to 20 consecutive
quarters. Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to 10 consecutive semi-annual periods. If interest
payments on the subordinated deferrable interest notes or debentures are so
deferred, distributions on the preferred securities will also be deferred.
During any deferral, distributions will continue to accrue with interest
thereon. In addition, during any such deferral, ComEd may not declare or pay
any dividend or other distribution on, or redeem or purchase, any of its
capital stock.

  The subordinated deferrable interest notes are redeemable by ComEd, in whole
or in part, from time to time, on or after September 30, 2000, and with
respect to the subordinate deferrable interest debentures, on or after January
15, 2007, or at any time in the event of certain income tax

                                      41
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
circumstances. If the subordinated deferrable interest notes or debentures are
redeemed, the Trusts must redeem preferred securities having an aggregate
liquidation amount equal to the aggregate principal amount of the subordinated
deferrable interest notes or debentures so redeemed. In the event of the
dissolution, winding up or termination of the Trusts, the holders of the
preferred securities will be entitled to receive, for each preferred security,
a liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, plus accrued and unpaid
distributions thereon, including interest thereon, to the date of payment,
unless in connection with the dissolution, the subordinated deferrable
interest notes or debentures are distributed to the holders of the preferred
securities.

(12) LONG-TERM DEBT

  Sinking fund requirements and scheduled maturities remaining through 2002
for ComEd's first mortgage bonds, sinking fund debentures and other long-term
debt outstanding at December 31, 1997, after deducting sinking fund debentures
reacquired for satisfaction of future sinking fund requirements, are
summarized as follows: 1998--$503 million; 1999--$150 million; 2000--$462
million; 2001--$108 million; and 2002--$305 million. Unicom Enterprises' note
payable to bank of $160 million will mature in 1999.


  At December 31, 1997, ComEd's outstanding first mortgage bonds maturing
through 2002 were as follows:

<TABLE>
<CAPTION>
                                                             PRINCIPAL AMOUNT
               SERIES                                     ----------------------
                                                          (THOUSANDS OF DOLLARS)
      <S>                                                 <C>
      6 1/4% due February 1, 1998........................       $   50,000
      6% due March 15, 1998..............................          130,000
      6 3/4% due July 1, 1998............................           50,000
      6 3/8% due October 1, 1998.........................           75,000
      9 3/8% due February 15, 2000.......................          125,000
      6 1/2% due April 15, 2000..........................          230,000
      6 3/8% due July 15, 2000...........................          100,000
      7 1/2% due January 1, 2001.........................          100,000
      7 3/8% due September 15, 2002......................          200,000
                                                                ----------
                                                                $1,060,000
                                                                ==========
</TABLE>

                                      42
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  Other long-term debt outstanding at December 31, 1997 is summarized as
follows:

<TABLE>
<CAPTION>
    DEBT      PRINCIPAL
  SECURITY      AMOUNT                       INTEREST RATE
------------  ---------- ------------------------------------------------------
              (THOUSANDS
                  OF
               DOLLARS)
<S>           <C>        <C>
Unicom--
 Loans Pay-
  able:
   Loan due   $    7,978
    January
    1, 2003              Interest rate of 8.31%
   Loan due
    January
    1, 2004        8,951 Interest rate of 8.44%
              ----------
              $   16,929
              ----------
ComEd--
  Notes:
   Medium
    Term
    Notes,
    Series
    1N due
    various
    dates
    through
    April 1,
    1998      $   35,500 Interest rates ranging from 9.52% to 9.65%
   Medium
    Term
    Notes,
    Series
    3N due
    various
    dates
    through
    October
    15, 2004     296,000 Interest rates ranging from 9.00% to 9.20%
   Notes due
    January
    15, 2004     150,000 Interest rate of 7.375%
   Notes due
    October
    15, 2005     235,000 Interest rate of 6.40%
   Notes due
    January
    15, 2007     150,000 Interest rate of 7.625%
              ----------
              $  866,500
              ----------
 Long-Term
  Note Pay-
  able to
  Bank due
  June 1,
  1998        $  150,000 Prevailing interest rate of 6.53% at December 31, 1997
              ----------
 Purchase
  Contract
  Obligation
  due April
  30, 2005    $      389 Interest rate of 3.00%
              ----------
Total ComEd   $1,016,889
              ----------
Unicom En-
 terprises--
 Long-Term
  Note Pay-
  able to
  Bank due
  November
  15, 1999    $  160,000 Prevailing interest rate of 6.95% at December 31, 1997
              ----------
Total Unicom  $1,193,818
              ==========
</TABLE>

  Long-term debt maturing within one year has been included in current
liabilities.

  ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.

  ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
resulted in a charge of $20 million, after reflecting income tax effects of
$13 million, or $0.09 per common share.

(13) LINES OF CREDIT

  ComEd had total bank lines of credit of $766 million and unused bank lines
of credit of $758 million at December 31, 1997. Of that amount, $758 million
(of which $146 million expires on September 27, 1998, $27 million expires in
equal quarterly installments commencing on March 31, 1998 and ending on
September 30, 1998 and $585 million expires in equal quarterly installments
commencing on March 31, 1998 and ending on September 30, 1999) may be borrowed
on secured or unsecured notes of ComEd at various interest rates. The interest
rate is set at the time of a borrowing and is based on several floating rate
bank indices plus a spread, which is dependent upon the credit rating of
ComEd's outstanding first mortgage bonds or on a prime interest rate. Amounts
under the remaining lines of credit may be borrowed at prevailing prime
interest rates on unsecured

                                      43
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
notes of ComEd. Collateral, if required for the borrowings, would consist of
first mortgage bonds issued under and in accordance with the provisions of
ComEd's mortgage. ComEd is obligated to pay commitment fees with respect to
the unused portion of such lines of credit.

  Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $40 million was unused as of December 31, 1997.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom and
Unicom Enterprises' operations. Such covenants include, among other things,
(i) a requirement that Unicom and its consolidated subsidiaries maintain a
tangible net worth at least $10 million over that of ComEd and its
consolidated subsidiaries, (ii) a requirement that Unicom's consolidated debt
to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on the
indebtedness for borrowed money that Unicom (excluding ComEd) and Unicom
Enterprises may incur, and (iv) a requirement that Unicom own 100% of the
outstanding stock of Unicom Enterprises and at least 80% of the outstanding
stock of ComEd; and provide that Unicom may not declare or pay dividends
during the continuance of an event of default. Interest rates for borrowings
under the credit facility are set at the time of a borrowing and are based on
either a prime interest rate or a floating rate bank index plus a spread which
varies with the credit rating of ComEd's outstanding first mortgage bonds.
Unicom Enterprises is obligated to pay commitment fees with respect to the
unused portion of such lines of credit.

(14) DISPOSAL OF SPENT NUCLEAR FUEL

  Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
selection and development of repositories for, and the disposal of, spent
nuclear fuel and high-level radioactive waste. ComEd, as required by that Act,
has signed a contract with the DOE to provide for the disposal of spent
nuclear fuel and high-level radioactive waste from ComEd's nuclear generating
stations beginning not later than January 1998. The DOE advised ComEd in
December 1996 that it anticipated it would be unable to begin acceptance of
spent nuclear fuel by January 1998. It is expected this delivery schedule will
be delayed significantly. Extended delays in spent nuclear fuel acceptance by
the DOE would lead to ComEd's consideration of costly storage alternatives.
The contract with the DOE requires ComEd to pay the DOE a one-time fee
applicable to nuclear generation through April 6, 1983 of $277 million, with
interest to date of payment, and a fee payable quarterly equal to one mill per
kilowatthour of nuclear-generated and sold electricity after April 6, 1983. As
provided for under the contract, ComEd has elected to pay the one-time fee,
with interest, just prior to the first delivery of spent nuclear fuel to the
DOE. The liability for the one-time fee and the related interest is reflected
on the Consolidated Balance Sheets.

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

  The following methods and assumptions were used to estimate the fair value
of financial instruments either held or issued and outstanding. The disclosure
of such information does not purport to be a market valuation of Unicom and
subsidiary companies as a whole. The impact of any realized or unrealized
gains or losses related to such financial instruments on the financial
position or results of operations of Unicom and subsidiary companies is in
part dependent on the treatment authorized under future ComEd ratemaking
proceedings.

  Investments. Securities included in the nuclear decommissioning funds have
been classified and accounted for as "available for sale" securities. The
estimated fair value of the nuclear

                                      44
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
decommissioning funds, as determined by the trustee and based on published
market data, as of December 31, 1997 and 1996 was as follows:

<TABLE>
<CAPTION>
                                DECEMBER 31, 1997                DECEMBER 31, 1996
                         -------------------------------- --------------------------------
                                                                     UNREALIZED
                                    UNREALIZED                         GAINS
                         COST BASIS   GAINS    FAIR VALUE COST BASIS  (LOSSES)  FAIR VALUE
                         ---------- ---------- ---------- ---------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
Short-term investments.. $   33,524  $      2  $   33,526 $   32,778  $     38  $   32,816
U.S. Government and
 Agency issues..........    170,240    15,882     186,122    251,994     6,885     258,879
Municipal bonds.........    306,104    20,598     326,702    331,936    17,985     349,921
Corporate bonds.........    231,738     4,293     236,031     22,405       (54)     22,351
Common stock............    667,657   385,851   1,053,508    539,392   201,304     740,696
Other...................     17,300     2,508      19,808     47,462     4,235      51,697
                         ----------  --------  ---------- ----------  --------  ----------
                         $1,426,563  $429,134  $1,855,697 $1,225,967  $230,393  $1,456,360
                         ==========  ========  ========== ==========  ========  ==========
</TABLE>

  At December 31, 1997, the debt securities held by the nuclear
decommissioning funds had the following maturities:

<TABLE>
<CAPTION>
                                                           COST BASIS FAIR VALUE
                                                           ---------- ----------
                                                               (THOUSANDS OF
                                                                 DOLLARS)
      <S>                                                  <C>        <C>
      Within 1 year.......................................  $ 33,699   $ 33,702
      1 through 5 years...................................   162,558    166,427
      5 through 10 years..................................   219,201    232,508
      Over 10 years.......................................   335,538    359,411
</TABLE>

  The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the years 1997,
1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                             1997         1996         1995
                                          -----------  -----------  -----------
                                                (THOUSANDS OF DOLLARS)
<S>                                       <C>          <C>          <C>
Gross proceeds from sales of securities.  $ 2,163,522  $ 2,335,974  $ 2,598,889
Less cost based on specific identifica-
 tion...................................   (2,088,300)  (2,300,038)  (2,581,714)
                                          -----------  -----------  -----------
Realized gains on sales of securities...  $    75,222  $    35,936  $    17,175
Other realized fund earnings net of ex-
 penses.................................       39,123       33,008       46,294
                                          -----------  -----------  -----------
Total realized net earnings of the
 funds..................................  $   114,345  $    68,944  $    63,469
Unrealized gains .......................      198,741       65,516      160,843
                                          -----------  -----------  -----------
 Total net earnings of the funds........  $   313,086  $   134,460  $   224,312
                                          ===========  ===========  ===========
</TABLE>

  Current Assets. Cash, temporary cash investments and other cash investments,
which include U.S. Government obligations and other short-term marketable
securities, and special deposits, which primarily includes cash deposited for
the redemption, refund or discharge of debt securities, are stated at cost,
which approximates their fair value because of the short maturity of these
instruments. The securities included in these categories have been classified
as "available for sale" securities.

  Capitalization. The estimated fair values of ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of the
Trusts and long-term debt were obtained from an independent consultant. The
estimated fair values, which include the current
portions of redeemable preference stock and long-term debt but exclude accrued
interest and dividends, as of December 31, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                DECEMBER 31, 1997                DECEMBER 31, 1996
                         -------------------------------- --------------------------------
                          CARRYING  UNREALIZED             CARRYING  UNREALIZED
                           VALUE      LOSSES   FAIR VALUE   VALUE      LOSSES   FAIR VALUE
                         ---------- ---------- ---------- ---------- ---------- ----------
                                              (THOUSANDS OF DOLLARS)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>
  ComEd preferred and
   preference stocks.... $  712,069  $ 11,970  $  724,039 $  755,931  $  3,948  $  759,879
  ComEd-obligated
   mandatorily
   redeemable preferred
   securities of the
   Trusts holding solely
   ComEd's subordinated
   debt securities...... $  350,000  $ 21,701  $  371,701 $  200,000  $  1,000  $  201,000
  Long-term debt........ $5,913,942  $380,890  $6,294,832 $6,345,533  $159,818  $6,505,351
</TABLE>


                                      45
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
  Long-term notes payable, which are not included in the above table, amounted
to $327 million and $264 million at December 31, 1997 and 1996, respectively.
Such notes, for which interest is paid at fixed and prevailing rates, are
included in the consolidated financial statements at cost, which approximates
their fair value.

  Current Liabilities. The carrying value of notes payable, which consists of
commercial paper and bank loans maturing within one year, approximates the
fair value because of the short maturity of these instruments. See
"Capitalization" above for a discussion of the fair value of the current
portions of long-term debt and redeemable preference stock.

  Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1997 and 1996; therefore, the carrying value is equal to the fair
value.

(16) PENSION BENEFITS

  As of December 31, 1997, ComEd and the Indiana Company had qualified non-
contributory defined benefit pension plans which cover all regular employees.
Benefits under these plans reflect each employee's compensation, years of
service and age at retirement. During 1995, these plans were amended to more
closely base retirement benefits on final pay. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The December
31, 1997 and 1996 pension liabilities and related data were determined using
the January 1, 1997 actuarial valuation. Additionally, ComEd maintains a
nonqualified supplemental retirement plan which covers any excess pension
benefits that would be payable to management employees under the qualified
plan but which are limited by the Internal Revenue Code. On January 19, 1998,
the Indiana Company plan was merged into the ComEd pension plan as a result of
the sale of the Indiana Company's State Line Station.

  The funded status of these plans, including the supplemental plan, at
December 31, 1997 and 1996 was as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31
                                                       ------------------------
                                                          1997         1996
                                                       -----------  -----------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                    <C>          <C>
Actuarial present value of accumulated pension plan
 benefits:
  Vested benefit obligation..........................  $(3,472,000) $(3,075,000)
  Nonvested benefit obligation.......................     (140,000)    (118,000)
                                                       -----------  -----------
  Accumulated benefit obligation.....................  $(3,612,000) $(3,193,000)
  Effect of projected future compensation levels.....     (462,000)    (386,000)
                                                       -----------  -----------
  Projected benefit obligation.......................  $(4,074,000) $(3,579,000)
Fair value of plan assets, invested primarily in U.S.
 Government, government-sponsored
 corporation and agency securities, fixed income
 funds, registered investment companies,
 equity index funds and other equity and fixed income
 funds ..............................................    3,706,000    3,281,000
                                                       -----------  -----------
Plan assets less than projected benefit obligation...  $  (368,000) $  (298,000)
Unrecognized prior service cost......................      (64,000)     (69,000)
Unrecognized transition asset........................     (114,000)    (130,000)
Unrecognized net loss................................      132,000      113,000
                                                       -----------  -----------
  Accrued pension liability..........................  $  (414,000) $  (384,000)
                                                       ===========  ===========
</TABLE>

  The fair value of plan assets excludes $17 million held in grantor trust as
of December 31, 1997 for payment of benefits under the supplemental plan.

                                      46
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  The assumed discount rate was 7.0% and 7.5% at December 31, 1997 and 1996,
respectively, and the assumed annual rate of increase in future compensation
levels was 4.0%. These rates were used in determining the projected benefit
obligations, the accumulated benefit obligations and the vested benefit
obligations.

  Pension costs were determined under the projected unit credit actuarial cost
method and the following actuarial assumptions for the years 1997, 1996 and
1995:

<TABLE>
<CAPTION>
                                                               1997  1996  1995
                                                               ----- ----- -----
<S>                                                            <C>   <C>   <C>
Annual discount rate.......................................... 7.50% 7.50% 8.00%
Annual rate of increase in future compensation levels......... 4.00% 4.00% 4.00%
Annual long-term rate of return on plan assets................ 9.75% 9.75% 9.75%
</TABLE>

  The components of pension costs, portions of which were recorded as
components of construction costs, for the years 1997, 1996 and 1995 were as
follows:

<TABLE>
<CAPTION>
                            1997       1996       1995
                          ---------  ---------  ---------
                             (THOUSANDS OF DOLLARS)
<S>                       <C>        <C>        <C>
Service cost............  $ 100,000  $  93,000  $  87,000
Interest cost on pro-
 jected benefit obliga-
 tion...................    261,000    247,000    226,000
Actual return on plan
 assets.................   (630,000)  (421,000)  (681,000)
Curtailment gain........     (5,000)       --         --
Net amortization and de-
 ferral.................    305,000    117,000    419,000
                          ---------  ---------  ---------
                          $  31,000  $  36,000  $  51,000
                          =========  =========  =========
</TABLE>

  The curtailment gain for the year 1997 represents the recognition of prior
service costs, the transition asset and the decrease in the projected benefit
obligation related to the sale of State Line Station by the Indiana Company.

  In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay. The participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $33 million, $30
million and $25 million for the years 1997, 1996 and 1995, respectively.

(17) POSTRETIREMENT BENEFITS

  ComEd and the Indiana Company provide certain postretirement health care,
dental care, vision care and life insurance for retirees and their dependents
and for the surviving dependents of eligible employees and retirees. The
employees become eligible for postretirement benefits when they reach age 55
with 10 years of service. The liability for postretirement benefits is funded
through trust funds based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes. The plan is
contributory, funded jointly by the companies and the participating employees.
The December 31, 1997 and 1996 postretirement benefit liabilities and related
data were determined using the January 1, 1997 actuarial valuations.

  Postretirement health care costs for the years 1997, 1996 and 1995 included
$8 million, $4 million and $25 million, respectively, related to voluntary
separation offers to certain employees of ComEd and the Indiana Company.

                                      47
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  The funded status of the plan at December 31, 1997 and 1996 was as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31
                                                       ------------------------
                                                          1997         1996
                                                       -----------  -----------
                                                       (THOUSANDS OF DOLLARS)
<S>                                                    <C>          <C>
Actuarial present value of accumulated postretirement
 benefit obligation:
 Retirees............................................  $  (573,000) $  (558,000)
 Active fully eligible participants..................      (28,000)     (28,000)
 Other participants..................................     (483,000)    (449,000)
                                                       -----------  -----------
 Accumulated benefit obligation......................  $(1,084,000) $(1,035,000)
Fair value of plan assets, invested primarily in S&P
 500 common stocks, registered investment companies
 and U.S. Government, government agency, municipal
 and listed corporate
 obligations.........................................      768,000      665,000
                                                       -----------  -----------
Plan assets less than accumulated postretirement ben-
 efit obligation.....................................  $  (316,000) $  (370,000)
Unrecognized transition obligation...................      345,000      370,000
Unrecognized prior service cost......................       52,000       56,000
Unrecognized net gain................................     (406,000)    (323,000)
                                                       -----------  -----------
 Accrued liability for postretirement benefits.......  $  (325,000) $  (267,000)
                                                       ===========  ===========
</TABLE>

  Different health care cost trends are used for pre-Medicare and post-
Medicare expenses. The pre-Medicare trend rates were 8.5% and 9.0% at December
31, 1997 and 1996, respectively, grading down in 0.5% annual increments and
leveling off at 5.0%. The post-Medicare trend rates were 6.5% and 7.0% at
December 31, 1997 and 1996, respectively, grading down in 0.5% annual
increments to 5.0%. The assumed discount rates were 7.0% and 7.5% at December
31, 1997 and 1996, respectively, which were used to determine the accumulated
benefit obligations. The effect of a 1% increase in the health care cost trend
rate for each future year would increase the accumulated postretirement health
care obligations by approximately $187 million.

  The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the years 1997, 1996 and
1995 were as follows:

<TABLE>
<CAPTION>
                                                  1997       1996      1995
                                                ---------  --------  ---------
                                                   (THOUSANDS OF DOLLARS)
      <S>                                       <C>        <C>       <C>
      Service cost............................. $  34,000  $ 32,000  $  31,000
      Interest cost on accumulated benefit ob-
       ligation................................    76,000    73,000     69,000
      Actual return on plan assets.............  (130,000)  (83,000)  (137,000)
      Amortization of transition obligation....    22,000    22,000     23,000
      Severance plan cost......................     8,000     4,000     25,000
      Other....................................    60,000    22,000     83,000
                                                ---------  --------  ---------
                                                $  70,000  $ 70,000  $  94,000
                                                =========  ========  =========
</TABLE>

  Postretirement benefit costs were determined using the projected unit credit
actuarial cost method. The discount rates used were 7.5% for the years 1997
and 1996 and 8.0% for the year 1995 and the estimated long-term rate of return
of fund assets, net of income tax effects, were 9.40%, 9.38% and 9.32% for the
years 1997, 1996 and 1995, respectively. Pre-Medicare health care cost trend
rates were 13.5% for the first three months of 1995 and 10% for the remainder
of the year, grading down in 0.5% annual increments to 5.0%. Post-Medicare
health care cost trend rates were 11% for the first three months of 1995 and
8% for the remainder of the year, grading down in 0.5% annual increments to
5.0%. The effect of a 1% increase in the health care cost trend rate for each
future year would increase the aggregate of the service and interest cost
components of postretirement benefit costs by approximately $21 million for
1997.

                                      48
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

(18) SEPARATION PLAN COSTS

  O&M expenses included $39 million, $12 million and $97 million for the years
1997, 1996 and 1995, respectively, for costs related to voluntary separation
offers to certain employees of ComEd and the Indiana Company. Such costs
resulted in charges of $24 million (after-tax) or $0.11 per common share, $7
million (after-tax) or $0.03 per common share and $59 million (after-tax) or
$0.27 per common share for the years 1997, 1996 and 1995, respectively.

(19) INCOME TAXES

  The components of the net deferred income tax liability at December 31, 1997
and 1996 were as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31
                                                         ----------------------
                                                            1997        1996
                                                         ----------  ----------
                                                             (THOUSANDS OF
                                                               DOLLARS)
<S>                                                      <C>         <C>
Deferred income tax liabilities:
 Accelerated cost recovery and liberalized deprecia-
  tion, net of removal costs...........................  $4,062,801  $3,514,300
 Overheads capitalized.................................     131,509     261,437
 Repair allowance......................................     231,697     228,426
 Regulatory assets recoverable through future rates....     785,354   1,649,037
Deferred income tax assets:
 Postretirement benefits...............................    (305,242)   (269,180)
 Unbilled revenues.....................................         --     (136,406)
 Alternative minimum tax...............................         --      (80,159)
 Unamortized investment tax credits....................    (206,112)   (225,360)
 Regulatory liabilities to be settled through future
  rates................................................    (698,750)   (442,941)
 Nuclear plant closure.................................    (194,244)        --
 Other--net............................................    (136,258)    (45,071)
                                                         ----------  ----------
Net deferred income tax liability......................  $3,670,755  $4,454,083
                                                         ==========  ==========
</TABLE>

  The $783 million decrease in the net deferred income tax liability from
December 31, 1996 to December 31, 1997 is comprised of $370 million of
deferred income tax benefits reflected in operations, a $315 million decrease
for an adjustment associated with the write-off of the generation-related net
regulatory assets and a $98 million decrease in other regulatory assets net of
regulatory liabilities pertaining to income taxes for the year. The amount of
regulatory assets included in deferred income tax liabilities primarily
relates to the equity component of AFUDC which is recorded on an after-tax
basis, the borrowed funds component of AFUDC which was previously recorded net
of tax and other temporary differences for which the related tax effects were
not previously recorded. The amount of other regulatory liabilities included
in deferred income tax assets primarily relates to deferred income taxes
provided at rates in excess of the current statutory rate.

  The components of net income tax expense charged to continuing operations
for the years 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                                   1997       1996      1995
                                                 ---------  --------  --------
                                                   (THOUSANDS OF DOLLARS)
<S>                                              <C>        <C>       <C>
Operating income:
 Current income taxes..........................  $ 255,277  $328,369  $339,989
 Deferred income taxes.........................     62,501   161,176   186,529
 Investment tax credits deferred--net..........    (31,015)  (33,378)  (28,710)
Other (income) and deductions, primarily de-
 ferred income taxes in 1997...................   (407,624)   (7,385)   (7,685)
                                                 ---------  --------  --------
Net income taxes charged (credited) to continu-
 ing operations................................  $(120,861) $448,782  $490,123
                                                 =========  ========  ========
</TABLE>


                                      49
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the years 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                1997        1996        1995
                                              ---------  ----------  ----------
                                                  (THOUSANDS OF DOLLARS)
<S>                                           <C>        <C>         <C>
Net income (loss) before extraordinary items
 and cumulative effect of change in
 accounting principle.......................  $(239,215) $  666,100  $  659,533
Net income taxes charged (credited) to
 continuing operations......................   (120,861)    448,782     490,123
Provision for dividends on ComEd preferred
 and preference stocks......................     60,486      64,424      69,961
                                              ---------  ----------  ----------
Pre-tax income (loss) before extraordinary
 items, cumulative effect and provision for
 dividends..................................  $(299,590) $1,179,306  $1,219,617
                                              =========  ==========  ==========
Effective income tax rate...................       40.3%       38.1%       40.2%
                                              =========  ==========  ==========
</TABLE>

  The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the years 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                                    1997       1996      1995
                                                  ---------  --------  --------
                                                    (THOUSANDS OF DOLLARS)
<S>                                               <C>        <C>       <C>
Federal income taxes computed at statutory rate.  $(104,857) $412,757  $426,866
Equity component of AFUDC which was excluded
 from taxable income............................     (8,320)   (7,272)   (4,595)
Amortization of investment tax credits..........    (53,541)  (33,378)  (28,710)
State income taxes, net of federal income taxes.       (682)   58,387    65,972
Differences between book and tax accounting,
 primarily property-related deductions..........     51,465    14,150    27,534
Other--net......................................     (4,926)    4,138     3,056
                                                  ---------  --------  --------
Net income taxes charged (credited) to
 continuing operations..........................  $(120,861) $448,782  $490,123
                                                  =========  ========  ========
</TABLE>

  The effects of an income tax refund related to prior years were recorded in
1996, resulting in a positive impact of $26 million (after-tax) or $0.12 per
common share.

(20) TAXES, EXCEPT INCOME TAXES

  Provisions for taxes, except income taxes, for the years 1997, 1996 and 1995
were as follows:

<TABLE>
<CAPTION>
                                                       1997     1996     1995
                                                     -------- -------- --------
                                                       (THOUSANDS OF DOLLARS)
      <S>                                            <C>      <C>      <C>
      Illinois public utility revenue............... $228,350 $227,062 $229,546
      Illinois invested capital.....................   99,503  104,663  106,830
      Municipal utility gross receipts..............  168,094  168,715  167,758
      Real estate...................................  151,508  129,770  176,454
      Municipal compensation........................   78,286   78,544   78,602
      Other--net....................................   75,145   74,777   74,107
                                                     -------- -------- --------
                                                     $800,886 $783,531 $833,297
                                                     ======== ======== ========
</TABLE>

  ComEd's real estate taxes in 1996 reflect a credit of $23 million which
related to the year 1995.

(21) LEASE OBLIGATIONS OF SUBSIDIARY COMPANIES

  Under its nuclear fuel lease arrangement, ComEd may sell and lease back
nuclear fuel from a lessor who may borrow an aggregate of $700 million,
consisting of $300 million of commercial paper/bank borrowings and $400
million of intermediate term notes, to finance the transactions. The

                                      50
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
commercial paper/bank borrowing portion of $300 million will expire on
November 23, 1999. With respect to the intermediate term notes, $74 million
expires on November 23, 1998, and an additional portion each November 23
thereafter through November 23, 2003. At December 31, 1997, ComEd's obligation
to the lessor for leased nuclear fuel amounted to approximately $679 million.
ComEd has agreed to make lease payments which cover the amortization of the
nuclear fuel used in ComEd's reactors plus the lessor's related financing
costs. ComEd has an obligation for spent nuclear fuel disposal costs of leased
nuclear fuel.

  Future minimum rental payments, net of executory costs, at December 31, 1997
for capital leases are estimated to aggregate $789 million, including $268
million in 1998, $167 million in 1999, $125 million in 2000, $81 million in
2001, $57 million in 2002 and $91 million in 2003-2043. The estimated interest
component of such rental payments aggregates $112 million. The estimated
portions of obligations due within one year under capital leases of $114
million and $174 million at December 31, 1997 and 1996, respectively, are
included in current liabilities on the Consolidated Balance Sheets.

  Future minimum rental payments at December 31, 1997 for operating leases are
estimated to aggregate $186 million, including $22 million in 1998, $20
million in 1999, $16 million in 2000, $15 million in 2001, $11 million in 2002
and $102 million in 2003-2024.

(22) JOINT PLANT OWNERSHIP

  ComEd has a 75% undivided ownership interest in the Quad Cities nuclear
generating station. Further, ComEd is responsible for 75% of all costs which
are charged to appropriate investment and O&M accounts, and provides its own
financing. At December 31, 1997, for its share of ownership in the station,
ComEd had an investment of $669 million in production and transmission plant
in service (before a reduction of $209 million for the related accumulated
provision for depreciation) and $8 million in construction work in progress.

(23) COMMITMENTS AND CONTINGENT LIABILITIES

  Purchase commitments, principally related to construction and nuclear fuel,
approximated $304 million at December 31, 1997, comprised of $286 million for
ComEd, $11 million for UT Holdings and $7 million for Unicom Energy Services.
In addition, ComEd has substantial commitments for the purchase of coal.
ComEd's coal costs are high compared to those of other utilities. ComEd's
western coal contracts and its rail contracts for delivery of the western coal
provide for the purchase of certain coal at prices substantially above
currently prevailing market prices. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources," for additional information regarding ComEd's purchase
commitments.

  ComEd was a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. NML has merged into
NEIL as of January 1, 1998. ComEd's obligations and coverages have not been
affected by the merger. The members are subject to a retrospective premium
adjustment in the event losses exceed accumulated reserve funds. Capital has
been accumulated in the reserve funds of NML to the extent that ComEd would
not be liable for a retrospective premium adjustment in the event of a single
incident. However, ComEd could be subject to a maximum assessment of
approximately $51 million in any policy year, in the event losses exceed
accumulated reserve funds.

                                      51
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

  ComEd is a member of NEIL, which provides insurance coverage against the
cost of replacement power obtained during certain prolonged accidental outages
of nuclear generating units and coverage for property losses in excess of $500
million occurring at nuclear stations. All companies insured with NEIL are
subject to retrospective premium adjustments if losses exceed accumulated
reserve funds. Capital has been accumulated in the reserve funds of NEIL to
the extent that ComEd would not be liable for a retrospective premium
adjustment in the event of a single incident under the replacement power
coverage and the property damage coverage. However, ComEd could be subject to
maximum assessments, in any policy year, of approximately $22 million and $70
million in the event losses exceed accumulated reserve funds under the
replacement power and property damage coverages, respectively.

  The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $1,030 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.

  In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive assesment
of up to $36 million in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves.

  During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations that Cotter has permitted radioactive and other
hazardous material to be released from its mill into areas owned or occupied
by the plaintiffs resulting in property damage and potential adverse health
effects. In 1994, a federal jury returned nominal dollar verdicts on 8
bellwether plaintiffs' claims in these cases, which verdicts were upheld on
appeal. The remaining claims in the 1989 actions have been settled and
dismissed. Although the remaining cases will necessarily involve the
resolution of numerous contested issues of fact and law, Unicom and ComEd's
determination is that these actions will not have a material impact on their
financial position or results of operations. A case relating to 14 of the
plaintiffs in the 1991 cases has been set for trial in June 1998.

  ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a
number of sites, including MGP sites, or may voluntarily undertake to
investigate and remediate sites for which they may be liable under CERCLA.

  ComEd generally did not operate MGPs as a corporate entity but did, however,
acquire MGP sites as part of the absorption of smaller utilities.
Approximately half of these sites were transferred to Northern Illinois Gas
Company as part of a general conveyance in 1954. ComEd also acquired former
MGP sites as vacant real estate on which ComEd facilities have been
constructed. To date, ComEd has identified 44 former MGP sites for which it
may be liable for remediation. ComEd presently estimates that its costs of
former MGP site investigation and remediation will aggregate from $25

                                      52
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED
million to $150 million in current-year (1998) dollars. It is expected that
the costs associated with investigation and remediation of former MGP sites
will be incurred over a period not to exceed 30 years. Because ComEd is not
able to determine the most probable liability for such MGP costs, in
accordance with accounting standards, a reserve of $25 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets as
of December 31, 1997 and 1996, which reflects the low end of the range of
ComEd's estimate of the liability associated with former MGP sites. In
addition, as of December 31, 1997 and 1996, a reserve of $8 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets,
representing ComEd's estimate of the liability associated with cleanup costs
of remediation sites other than former MGP sites. Approximately half of this
reserve relates to anticipated cleanup costs associated with a property
formerly used as a tannery which was purchased by ComEd in 1973. Unicom and
ComEd presently estimate that ComEd's costs of investigating and remediating
the former MGP and other remediation sites, pursuant to CERCLA and state
environmental laws, will not have a material impact on the financial position
or results of operations of Unicom or ComEd. These cost estimates are based on
currently available information regarding the responsible parties likely to
share in the costs of responding to site contamination, the extent of
contamination at sites for which the investigation has not yet been completed
and the cleanup levels to which sites are expected to have to be remediated.

  Final ICC orders have been issued in fuel reconciliation proceedings for
years prior to 1994 and for the year 1995. In 1996, an intervenor filed
testimony in the fuel reconciliation proceeding for 1994 seeking a refund of
approximately $90 million relating to nuclear station performance. The 1997
Act provides that the fuel reconciliation proceedings for 1994 and 1996 must
be concluded by the end of 1998. If refunds are required in these proceedings,
the refunds could have a material effect on results of operations. The 1997
Act also provides that, because ComEd eliminated its FAC effective January 1,
1997, the ICC shall not conduct a fuel reconciliation proceeding for the year
1997 and subsequent years. See Note 2 for information regarding the
elimination of ComEd's FAC.

                                      53
<PAGE>

                  UNICOM CORPORATION AND SUBSIDIARY COMPANIES

                    NOTES TO FINANCIAL STATEMENTS--CONCLUDED

(24) QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                              AVERAGE   EARNINGS/
                                                             NUMBER OF   (LOSS)
THREE MONTHS ENDED (1997                           NET        COMMON       PER
RESTATED FOR CHANGE       OPERATING  OPERATING   INCOME/      SHARES     COMMON
IN ACCOUNTING PRINCIPLE)   REVENUES   INCOME     (LOSS)     OUTSTANDING   SHARE
------------------------  ---------- --------- -----------  ----------- ---------
                                    (THOUSANDS EXCEPT PER SHARE DATA)
<S>                       <C>        <C>       <C>          <C>         <C>
March 31, 1997..........  $1,670,722 $214,912  $   262,370    216,053    $ 1.21
June 30, 1997...........  $1,686,422 $153,128  $     5,494    216,368    $ 0.03
September 30, 1997......  $2,070,912 $387,283  $   240,332    216,409    $ 1.11
December 31, 1997.......  $1,654,966 $157,080  $(1,361,046)   216,489    $(6.29)
March 31, 1996..........  $1,683,929 $297,526  $   136,932    215,248    $ 0.64
June 30, 1996...........  $1,547,913 $253,086  $   100,313    215,438    $ 0.47
September 30, 1996......  $2,067,901 $474,894  $   334,980    215,568    $ 1.55
December 31, 1996.......  $1,637,281 $237,802  $    93,875    215,747    $ 0.44
<CAPTION>
                                                              AVERAGE   EARNINGS/
                                                             NUMBER OF   (LOSS)
                                                   NET        COMMON       PER
THREE MONTHS ENDED PRO    OPERATING  OPERATING   INCOME/      SHARES     COMMON
FORMA (UNAUDITED)(A)       REVENUES   INCOME     (LOSS)     OUTSTANDING   SHARE
----------------------    ---------- --------- -----------  ----------- ---------
                                    (THOUSANDS EXCEPT PER SHARE DATA)
<S>                       <C>        <C>       <C>          <C>         <C>
March 31, 1997..........  $1,670,722 $214,912  $    65,670    216,053    $ 0.30
June 30, 1997...........  $1,686,422 $153,128  $     5,494    216,368    $ 0.03
September 30, 1997......  $2,070,912 $387,283  $   240,332    216,409    $ 1.11
December 31, 1997.......  $1,654,966 $157,080  $(1,361,046)   216,489    $(6.29)
March 31, 1996..........  $1,636,512 $271,259  $   110,665    215,248    $ 0.51
June 30, 1996...........  $1,599,877 $283,266  $   130,493    215,438    $ 0.61
September 30, 1996......  $2,045,719 $462,005  $   322,091    215,568    $ 1.49
December 31, 1996.......  $1,709,447 $278,908  $   134,981    215,747    $ 0.63
</TABLE>

(a) Pro forma quarterly financial information as if the change in accounting
    principle had been applied retroactively, excluding the cumulative effect
    of a change in accounting principle.

                                       54